State income taxes on income earned out of state

Discussion in 'Tax' started by Drewremedy, Jan 7, 2004.

  1. Drewremedy

    Drewremedy Guest

    Can somebody suggest some states which income tax residents
    on income earned out of state WITHOUT credit for income
    taxes paid elsewhere.

    EG A State X which fully taxes A's earned income in State
    Y even though resident A already paid state income taxes to
    Y.

    Does CA fit this mold?

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    Drewremedy, Jan 7, 2004
    #1
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  2. "Drewremedy" <> wrote:

    > Can somebody suggest some states which income tax residents
    > on income earned out of state WITHOUT credit for income
    > taxes paid elsewhere.
    >
    > EG A State X which fully taxes A's earned income in State
    > Y even though resident A already paid state income taxes to
    > Y.
    >
    > Does CA fit this mold?


    Don't know about CA offhand.

    But for NY - check out the Zelinsky(not sure if I'm spelling
    the name correctly) case. Its been through several judicial
    processes already, with more likely to come.

    There are also more NY cases on this subject, with various
    different fact patterns.

    --
    <<< Benjamin Yazersky CPA [NJ & NY] >>>

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    Benjamin Yazersky CPA, Jan 9, 2004
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  3. Benjamin Yazersky CPA <> wrote:
    > "Drewremedy" <> wrote:


    >> Can somebody suggest some states which income tax residents
    >> on income earned out of state WITHOUT credit for income
    >> taxes paid elsewhere.
    >>
    >> EG A State X which fully taxes A's earned income in State
    >> Y even though resident A already paid state income taxes to
    >> Y.


    > But for NY - check out the Zelinsky(not sure if I'm spelling
    > the name correctly) case. Its been through several judicial
    > processes already, with more likely to come.
    >
    > There are also more NY cases on this subject, with various
    > different fact patterns.


    When I lived in NY and worked in other states, my state
    Income Tax return included a credit for the taxes paid to
    the other states.

    Seth

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    Seth Breidbart, Jan 10, 2004
    #3
  4. Drewremedy

    A.G. Kalman Guest

    Drewremedy wrote:

    > Can somebody suggest some states which income tax residents
    > on income earned out of state WITHOUT credit for income
    > taxes paid elsewhere.
    >
    > EG A State X which fully taxes A's earned income in State
    > Y even though resident A already paid state income taxes to
    > Y.
    >
    > Does CA fit this mold?


    CA gives its residents tax credits for income tax paid to
    the other states except for those where they have the
    "reverse rule."

    The "reverse rule" is that the state where the CA resident
    worked gives the credit. From memory: No credits for
    working in AZ, IN and OR. Those states give the nonresident
    taxpayer a credit for CA taxes paid on income earned in
    their state. This also means that an AZ resident working in
    CA could not claim a credit on the AZ tax return but would
    claim the credit on the nonresident CA return. There's a
    funny rule with VA that involves dual residents that I can't
    remember, but effectively if you don't get the credit from
    CA, you get it from VA. The net of this is that double
    taxation for CA residents is avoided.

    CA also gives a credit for taxes paid to American Samoa,
    Puerto Rico and the Virgin Islands. Guam uses the "reverse
    rule." There's a rule with D.C. that I think is similar to
    the one with VA.

    Hopefully, Katie Jaques is reading this and will correct me
    if I screwed it up.

    --
    Alan
    http://taxtopics.net

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    A.G. Kalman, Jan 12, 2004
    #4
  5. Drewremedy

    D. Stussy Guest

    A.G. Kalman wrote:
    > Drewremedy wrote:


    >> Can somebody suggest some states which income tax residents
    >> on income earned out of state WITHOUT credit for income
    >> taxes paid elsewhere.
    >>
    >> EG A State X which fully taxes A's earned income in State
    >> Y even though resident A already paid state income taxes to
    >> Y.
    >>
    >> Does CA fit this mold?


    California regularly breaks the mold - especially now that
    it needs money.

    > CA gives its residents tax credits for income tax paid to
    > the other states except for those where they have the
    > "reverse rule."
    >
    > The "reverse rule" is that the state where the CA resident
    > worked gives the credit. From memory: No credits for
    > working in AZ, IN and OR. Those states give the nonresident
    > taxpayer a credit for CA taxes paid on income earned in
    > their state. This also means that an AZ resident working in
    > CA could not claim a credit on the AZ tax return but would
    > claim the credit on the nonresident CA return. There's a
    > funny rule with VA that involves dual residents that I can't
    > remember, but effectively if you don't get the credit from
    > CA, you get it from VA. The net of this is that double
    > taxation for CA residents is avoided.


    Correct for VA as to applying a "reverse credit." However,
    I don't believe that residency is necessary. I have only
    seen that situation once - for a multi-state worker who also
    had credits to "normal" states on the CA return.

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    D. Stussy, Jan 13, 2004
    #5
  6. Drewremedy

    Katie Jaques Guest

    (Drewremedy) wrote:

    > Can somebody suggest some states which income tax residents
    > on income earned out of state WITHOUT credit for income
    > taxes paid elsewhere.
    >
    > EG A State X which fully taxes A's earned income in State
    > Y even though resident A already paid state income taxes to
    > Y.
    >
    > Does CA fit this mold?


    Well, I thought I had written a lengthy (probably TOO
    lengthy <G>) response to this, but it seems to have gone
    into a black hole somewhere ....

    Now why would you suspect that CA wouldn't allow credit for
    taxes paid to other states?? CA gets SUCH a bad rap ....

    Fact is that EVERY state that imposes a comprehensive
    individual income tax allows its residents credit for taxes
    paid to other states. However, there are some limitations on
    those credits.

    About 14 states, including CA, allow credit to a resident
    for taxes paid to another state on income that has its
    source in the other state. States do disagree, however, on
    the definition of source income, and as a result two states
    may consider the same item of income to be sourced
    differently.

    The Zelinsky situation in NY, to which Ben referred, is an
    example. The NY Court of Appeal (highest court in NY)
    recently upheld, again, the long-standing NY regulation that
    considers income earned by a nonresident by performing
    services at his out-of-state home to be NY source income if
    the employee EVER visits his employer's NY office during the
    taxable year, UNLESS the services were performed at the
    employee's home out of NECESSITY (in other words, there is
    NO PLACE ELSE where that job can be done) and not for the
    convenience of either the employer or the employee. Now, CA
    considers income from personal services to have its source
    where the services are performed. So a CA resident who
    telecommutes from home, working for a NY employer, would be
    subject to NY tax on all of his compensation if he spent any
    time at all in NY. But CA would allow him credit for the
    tax he paid to NY ONLY on the portion of his compensation
    that was earned by performing services in NY. The portion
    that was earned by performing services at his home in CA is
    CA source income by CA's lights, and no credit would be
    allowed for the tax paid to NY on that income.

    There are other hitches in the other state tax credit
    scenario. Timing can be an issue; if an item of income is
    taxed by the nonresident state in a different year, the
    resident state may not allow a credit for the tax. An
    example would be an installment sale where the taxpayer
    "elected out" for state purposes and paid tax to State A in
    the year of sale, then moved to State B and collected on the
    sale (an installment sale for federal purposes). State B is
    likely not to allow credit in the year of recognition for
    the tax that was paid to State A in the year of the sale.
    (The FTB staff has proposed and is working on a regulation
    that would allow credit to CA residents in such situations.
    See, they're not such bad guys <G>.)

    Another issue came up on this board recently, where two
    states (I think it was Ohio and Indiana) had a reciprocal
    agreement under which a resident of one state working in the
    other would be taxed only by the state of residence. The
    Indiana resident employee's Ohio employer mistakenly
    withheld Ohio tax on his wages. As a result he is
    overwithheld for Ohio and underwithheld (and subject to
    penalty) for Indiana. The preparer wondered if he could
    just go ahead and pay the tax to Ohio and get credit on the
    Indiana return. Alas, an Indiana regulation denies the
    credit in that situation. He can only get the money back
    from Ohio, not from Indiana.

    As someone else mentioned, there are states that stand in a
    reverse credit relationship to one another, whereby the
    source state rather than the residence state allows the
    credit. California, Arizona, Oregon, Virginia are examples.
    If you live in one of those states and work in another of
    them, you get the credit from the state where you work, not
    the state where you live. It's sort of equivalent to the
    reciprocal agreement, e.g. the Ohio/Indiana agreement
    referred to above. It's a question of which state gets to
    keep the tax. In the usual situation, the residence state
    cedes the tax to the source state by allowing the credit.
    In the reverse credit situation, or the reciprocal agreement
    for employees, the source state cedes the tax to the
    residence state.

    So ... no, there are NO states that categorically deny
    credit for taxes paid to other states. But the credit is
    not always available, for various reasons, and it appears
    that such credits are a matter of legislative grace and not
    of constitutional necessity.

    Katie in San Diego

    The foregoing is intended for educational purposes only and
    does not constitute legal or professional advice.

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    Katie Jaques, Jan 15, 2004
    #6
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