Equifax

Finance Blog

Filing State Taxes for Out-of-Staters

Written by Eva Rosenberg on February 14, 2012 in Tax  |   No comments

As you may have noticed, the country is facing budget crunches on all sides. The feds are billions of dollars in the hole, while states are cutting jobs, holding up refunds, and struggling to stay solvent. No one wants to raise taxes, but the money…

As you may have noticed, the country is facing budget crunches on all sides. The feds are billions of dollars in the hole, while states are cutting jobs, holding up refunds, and struggling to stay solvent. No one wants to raise taxes, but the money must come from somewhere.

What’s the easiest way to generate money without raising taxes? Find more ways of collecting taxes. For states, that means cashing in on the earnings of out-of-staters who are filing taxes—those folks who only work in the state temporarily or those who have a shadow of a presence.

How are the states doing this? Three ways: one tax for individuals, one for businesses, and one for both individuals and businesses.

Three state taxes you may need to know:

1) The Jock Tax. States started taxing athletes, performers, and others who work in their states for a few days. After all, these individuals often earn as much in a day or two as you or I earn in a year.

States have graduated to taxing ordinary mortals for working there for a few months. New York even established a precedent by taxing individuals who don’t work in the state or are not filing taxes. Yup! Thomas Huckaby worked for a New York corporation from his home in Tennessee. New York assessed income taxes against him—and won.

Why did New York win, even on appeal? Because Huckaby was working from his home in Tennessee for his own convenience and not for his employer’s benefit. Even the IRS takes that into account when looking at the office in home deduction for employees. You cannot use that tax benefit unless you are working at home for your employer’s convenience.

Another problem that arises: people who are moved to another state by an employer. When those people get their W-2s, there’s no withholding for the new state. It’s the individual’s responsibility to alert his or her payroll department that the state withholding needs to be changed. Who else will?

2) The Use Tax. Odds are, you do some of your shopping online. Many Internet-based stores don’t charge sales taxes in your state. Your state knows that. States are either adding a use tax line to your income tax forms or are requiring that you file a use tax return to report major purchases. You have two ways to report your purchases—either keeping track of the big purchases (computers, appliances, and so on) or by using the tables your state provides.

When you track your untaxed purchases, keep tabs on the downloadables vs. the physical goods. Downloadables are usually not subject to sales taxes in most states.

3) Sales taxes. This issue mostly affects businesses, not individuals. The question of state taxes has always been a major one with mail order houses located in one state that sell and ship to another state. You had to be pretty big—think Amazon.com—to get the attention of a state government. Today, even home-based operators can ship hundreds of thousands of dollars of merchandise into a state—think eBay sellers.

Several states require you to collect and pay sales taxes if you have nexus in the state. Nexus means any kind of physical presence. Having affiliates or sales agents may be enough for you to have nexus in a state.

Consult with your tax pro to determine how to restructure your marketing model to protect yourself from complex multi-state taxation. After all, registering for sales taxes also means registering for income taxes in that state.

READ MORE:
Money Management Tips: Storing Your Paperwork
Last-Minute Ideas for Saving Money on Your Taxes
Documenting Your Donations for Tax Deductions
Tax Deduction for Claiming Elderly Relatives and Dependents
Tax Tips: Tax Implications of a New Baby
Paying Taxes on Self-Employed or Side Income

Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.

No comments yet


Leave a Comment


Name :


Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.


Tax Archive

Stay Informed Sign up for our FREE Equifax email Newsletter