Tag/License lights work when trunk open but not closed!
 

1995 E300D -
While I am driving around at night, the license plate bulbs will not work. However, when I open the trunk when the headlights are NOT on, they work just fine! There is not a short here. I can leave the trunk open and press the switch which indicates whether trunk is closed or open. The lights turn off when button is pressed/trunk closed. But open the trunk and lights are on perfectly. Now if I then go into car and turn headlights to on position, the tag lights will not come on in either position!

I have tried to find a resolution via the search function but this one seems more specific than what I have been finding. Thanks!

Check if the wiring runs along the trunk hinges.........

It all looks to be solid and intact. But please expound on what you mean?

Typically short circuit caused by bare wire or wire pinch.

If the fuses are not clearing, you don't have a "short".

What usually happens is the conductor breaks inside the insulation leaving an intermittent "Open ".

The tests are to lightly pull on a single wire in an area that has high flex. If the conductor is broken, the insulation will stretch. You could also run a temp jumper across the trunk wiring ( hopefully from from plug to plug . )

Super flex wire has very fine strands to cope with flexing, regular wire can be used and usually lasts long enough. In either case be sure to leave enough slack and avoid flexing in a small area.

The odd thing though is that they work flawlessly unless lights are turned on in vehicle. With vehicle and/or lights off, I can open the trunk and press the switch and it will turn off when closed but on when open.

Test with a multimeter. If you do not know how to use a multimeter, then take your car to a mechanic.

I'm thinking the ground has lifted at the trunk and the lights are seeking ground through bulbs that are not on.

This is a similar effect as an alternator charging light where power is applied to leg A of the bulb, leg B sees ground through the field winding. Once the alternator starts operating, power is applied to the field and leg B sees power. Given the lamp has positive on both legs it won't light.

First thought I had when reading the header.....
 

When you disclosed the fact that the position of the trunk lid affected the operation, this tells me you've got a broken wire in the harness.
Check the harness along the trunk hinge where it flexes. Visual inspection will not reveal an open (broken) wire.

Diagnose by having a second person observe/operate switches, whilst you perturb the wiring harness.
By moving the harness back and forth gently, you can get the open wire to reconnect momentarily.

I can recall having this problem on at least two of the many W124 cars I've owned. No, four. I forgot the door wiring is also susceptible to this failure as well.....
I do not think this issue of broken wires is related to the crumbling wiring harness insulation, as it's happened with early W124s I've had.

Jim

+1 I believe both circuits ground to the same point and tie into other circuits which may be more solidly grounded, so this is a very plausible explanation. The ground should be on the left inner fender, you will probably need to pop out the plastic liner to access it.

Or what if the switch wires are on the switch the wrong way ?.Has it ever worked , if it has them it wont be the wires in wrong place. But could the loom that runs through the boot hinge as a broken wire ,open makes contact closed broken contact .