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.
- Your small business registers for sales tax in Texas and you receive a letter from some obscure Texas town that says you need to send them a registration fee. Where did this come from?
- 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 a physical presence in Minnesota. The same situation is true in California and other states.
- You decide to retire in Nevada to enjoy the sunshine. You then receive an audit letter from New York that says you need to pay them income tax, even though you no longer live there. They demand credit card statements, your driver’s license and more. You provide the information, yet their demands do not go away.
- 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 national laws that protect interstate commerce. This new category of tax is in addition to income taxes and sales/use taxes.
Until national leadership provides unified interstate guidance, states continually become more aggressive with the creation of new tax laws. This is more prevalent as states struggle with lost revenue due to COVID-19 and the reach of this global pandemic. There are even situations where two states can claim tax on the same income and you are stuck in the middle facing double taxation and tax penalties.
The volatility of the economic state of duress requires an annual review. If you have a move in your future, you may be at real peril. Reach out to Patrick’s team if you need help.