2015 Tax Quiz


The states must be crazy

Historically, nexus laws protect consumers and businesses from paying taxes to states where they do not visit or live. These laws are intended to protect interstate commerce. With the lack of strong federal tax guidance, many states are now passing fairly creative laws to reach into the pockets of their fellow states’ tax revenues. Can you match the creative law with the state?

Question: Consultants pay more tax than employees. This state wants income tax on your consulting work as a non-resident but does not require you to pay tax if you are a non-resident “employee” doing the exact same work despite the fact you never set foot in their state.
Answer: California
Question: A non-resident gets married and pays tax to a state he has never visited. A widower who lives and works in Florida marries a widow from another state. The widow’s state demands income tax on the new husband’s earnings made while living and working in Florida.
Answer: Utah and others
Question: New gross receipts tax concept. This state’s recent law introduces a Commerce Tax based on a business’ gross receipts and the type of business they conduct. This departure from traditional sales/use tax and income tax is placed on any business that has $4 million or more in state gross receipts. The tax is owed even if the business is located in another state. To make matters worse, the law requires the out-of-state businesses to pay for any audit related expenses should the state wish to examine their books. Expense reimbursement could be required even if no tax is due as a result of the audit.
Answer: Nevada
Question: Tax your inheritance. The federal government and most states will tax the estate of a person who passes away. But a few states also tax the other end of the death spectrum; those who receive an inheritance. If you expect money from a rich relative, you will not want to live in any of these states when your new found wealth arrives.
Answer: Iowa, Nebraska, Pennsylvania, Kentucky, New Jersey, Maryland

Given the copy-cat nature of state revenue departments, it is possible that many more states have followed the lead of those mentioned here. Your best defense is to know the rules and support establishing legislative clarity at the federal level from our elected officials.