States are creating laws that snag taxpayers everywhere
New state tax laws are making more and more taxpayers tax cheats without them realizing it is happening. Think it can’t happen to you? Here are some examples.
- A Florida widower with income, marries a retired woman who lived in Utah for nine months. The woman has no income. He has never been to Utah, even to visit. Per Utah tax law he must now pay income tax to Utah on his Florida income if he files a joint federal tax return.
- A Delaware resident owes Minnesota income tax for consulting work even though she never steps foot in Minnesota. This is because the company who the Delaware resident did work for has its headquarters in Minnesota. The same situation is true in California and other states.
- Alabama decides to ignore the Supreme Court physical presence nexus rulings and has redefined nexus to equate to dollar sales. They call this concept “economic nexus” and passed the law change without a legislative vote. They have decided to go after small and large businesses to collect and send their residents’ use tax to them or be penalized. They will do this until someone challenges them.
- California routinely sends out notices to small businesses throughout the country demanding detailed sales transactions for multiple years for any of their California businesses. If you do not reply, you could be in for an audit from this state.
- States are creating business fees to capture taxes from out-of-state small businesses. This is to get around the current national laws that protect interstate commerce. The new category of tax is in addition to income taxes and sales/use taxes.
Until national leadership provides unified interstate guidance, states will continue to get more aggressive in law creation. This often creates situations where two states will claim tax on your income and you are stuck in the middle facing double taxation and tax penalties.
Please ask for help if you think you may have business activity or any other financial activity in more than one state. This ever changing landscape requires annual review.