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Author: op456op Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Follow Up Nonresident taxes? Date: 5/28/2009 8:28 PM
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So for all those business people out there that regularly travel, of which I'm one, once you reach a threshold (or $1 or more) for having to pay a state tax, if we don't we're in jeopardy of fines, jail time, sanctions etc, correct?

I've got to believe there are millions of us. What if we all complied? Would that put a burden on the tax systems of the fed and states to the point of it costing them more to process than they are owed in taxes? Or do the computers take care of all that?

The reality of this is mind boggling. Are these states going to chase down all the "one night stands" that are over the threshold? How are they going to know, check hotel or credit card records?

I've heard who they're really after is all the sports players and entertainers, the big hitters so to speak. What a nightmare for them, granted with the money most of them make all they have to do is keep track of the times of where they are. Or have someone do it for them
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Author: Patzer Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 106153 of 121061
Subject: Re: Follow Up Nonresident taxes? Date: 5/28/2009 9:29 PM
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So for all those business people out there that regularly travel, of which I'm one, once you reach a threshold (or $1 or more) for having to pay a state tax, if we don't we're in jeopardy of fines, jail time, sanctions etc, correct?

I used to travel for business, but don't any more and haven't for several years.

I've got to believe there are millions of us. What if we all complied? Would that put a burden on the tax systems of the fed and states to the point of it costing them more to process than they are owed in taxes? Or do the computers take care of all that?

There would be no additional strain on the federal system, because your federal return would not change. There would be a lot of nonresident returns for states that require this, and sorting out the truth would be difficult unless the employers reported the income as earned in various states. The states might get enough revenue to cover the additional processing costs or might not; but the employers simply get a huge additional reporting burden for no particular corporate benefit.

The reality of this is mind boggling. Are these states going to chase down all the "one night stands" that are over the threshold? How are they going to know, check hotel or credit card records?

To get some idea of what technical compliance would mean, I looked at a state I have traveled to but would be unlikely to visit again, a state I haven't traveled to but which would be a plausible travel destination in the future, and Washington, DC, which is the most recent place I traveled to on business and a possible future destination.

DC is the friendliest of the lot. Nonresidents don't pay income tax. They even have a nonresident refund request form that basically asks for any withholding and estimated tax payments to be returned.

The other two states say you don't have to file if your state-source income is under the *prorated* threshold. What that means is, if the threshold is $3000 and 1% of your income was in that state, your prorated threshold is $30. Stripping away the math and ignoring some potential adjustments around the edges, it means if your total income is over the state threshold, you have to file.

So, what would it mean if I took a business trip to corporate headquarters and actually reported a day's salary on a nonresident return for another state? I'd do a bunch of calculations on the nonresident return, mail it in with a tax payment, and claim the taxes paid as a credit on my New York return for no tax dollar impact to me but a bunch of paperwork. I could, in theory, do this if I kept accurate records; but I could not support how much income was earned in which state unless I kept very detailed supporting documentation or my corporate payroll tracked the time and reported the earnings by state. I'm sure my corporate payroll would be as eager to do this as yours is.

I've heard who they're really after is all the sports players and entertainers, the big hitters so to speak. What a nightmare for them, granted with the money most of them make all they have to do is keep track of the times of where they are. Or have someone do it for them

Sports players already live with this nightmare. The major league guys earn enough to pay someone to figure it out. I felt sorry for the semi-pro player who came into my VITA office last year. I had to tell him I could do the federal return and the NY resident return, but I couldn't help him with the other two states. And his income level was such that a good professional would be a very noticeable expense.

Patzer

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 106156 of 121061
Subject: Re: Follow Up Nonresident taxes? Date: 5/29/2009 5:34 AM
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I could not support how much income was earned in which state unless I kept very detailed supporting documentation or my corporate payroll tracked the time and reported the earnings by state. I'm sure my corporate payroll would be as eager to do this as yours is.

I always assumed that every state had some sort of de minimus exemption, because of the record keeping nightmare you describe, until a couple of years ago when someone corrected me in another forum. It's been over 12 years since I traveled on business, so I think it's safe to confess now.

While a resident of another state I physically did business in 33 states during my IRS years. It never occurred to me that I had some sort of filing responsibility in any of them, and nobody at the IRS ever said boo about it. This is the same IRS, as I noted in our discussion of the Geither nomination, that puts employees through hell for missing a 1099 that doesn't even change the tax due.

I hesitate to type the next sentence since I'm well known around here for berating people for a "How can they catch me?" approach to tax law, but...

Don't worry about it.

I think whoever suggested that what the states really care about is those who earn big bucks in a quick visit was spot on. If all road warriors who live out of a suitcase magically started complying the states would quickly realize that it isn't worth the effort and would install some minimums at the request of their inundated revenue people.

Phil

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Author: bacon Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 106158 of 121061
Subject: Re: Follow Up Nonresident taxes? Date: 5/29/2009 7:02 AM
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So, what would it mean if I took a business trip to corporate headquarters and actually reported a day's salary on a nonresident return for another state? I'd do a bunch of calculations on the nonresident return, mail it in with a tax payment, and claim the taxes paid as a credit on my New York return for no tax dollar impact to me but a bunch of paperwork. I could, in theory, do this if I kept accurate records; but I could not support how much income was earned in which state unless I kept very detailed supporting documentation....

Wouldn't the expense voucher you filed with your corporation, together with your W-2 (and perhaps the paystubs covering the period of the trip) contain the records you need?

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Author: bacon Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 106159 of 121061
Subject: Re: Follow Up Nonresident taxes? Date: 5/29/2009 7:10 AM
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If all road warriors who live out of a suitcase magically started complying the states would quickly realize that it isn't worth the effort and would install some minimums at the request of their inundated revenue people.

I'm not sure I agree with this. Many states would simply continue, not connecting budget overruns with continuing/mounting expenses. Other states would try to charge a filing fee to cover these "nuisance" acts of integrity, still others would adjust the de minimus threshold.

Eric Hines

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Author: Patzer Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 106161 of 121061
Subject: Re: Follow Up Nonresident taxes? Date: 5/29/2009 11:16 AM
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Wouldn't the expense voucher you filed with your corporation, together with your W-2 (and perhaps the paystubs covering the period of the trip) contain the records you need?

Yes, assuming the expense voucher exists. Last trip I took (to DC, so no tax consequences), the expenses all went on the more senior guy's expense voucher and I had nothing.

Continuing the thought experiment, if I document travel to prove I earned in other states, wouldn't I also need to document travel that was for personal business, to prove I *wasn't* earning in other states on that trip? Or worse, since I'm a salaried employee, would some of those state consider me as having earned something there by virtue of spending part of my paid vacation in their state?

I'm sure glad the states generally aren't competent to play Big Brother at that level of detail.

Patzer

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Author: stockmover Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 106162 of 121061
Subject: Re: Follow Up Nonresident taxes? Date: 5/29/2009 2:10 PM
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Don't worry about it.

I think whoever suggested that what the states really care about is those who earn big bucks in a quick visit was spot on. If all road warriors who live out of a suitcase magically started complying the states would quickly realize that it isn't worth the effort and would install some minimums at the request of their inundated revenue people.


I totally agree with Phil and it is admirable of him to acknowledge the reality of this situation. Unless you are making "really big bucks" like the top athletes the individual States have their hands full just trying to collect taxes from their legitimate fulltime residents. As a former state employee I can attest to this fact.

TG

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Author: op456op Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 106170 of 121061
Subject: Re: Follow Up Nonresident taxes? Date: 5/29/2009 8:29 PM
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Thanks everyone. I appreciate everybody's input. But here's another wrinkle. I live in a state that has no income tax (but they get it elsewhere with general sales tax of 9-9.5%, plus huge gasoline taxes) Of course now that everybody is cutting back or delaying purchases of big ticket items, they're crying shortfall in the billions.

Patzer sez: ....what would it mean if I took a business trip to corporate headquarters and actually reported a day's salary on a nonresident return for another state? I'd do a bunch of calculations on the nonresident return, mail it in with a tax payment, and claim the taxes paid as a credit on my New York return for no tax dollar impact to me but a bunch of paperwork.

So the wrinkle for me is, where would any tax credit for NR state tax be for me since I don't have a state return? On a Federal return?

Again, Thx

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Author: Patzer Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 106171 of 121061
Subject: Re: Follow Up Nonresident taxes? Date: 5/29/2009 11:50 PM
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So the wrinkle for me is, where would any tax credit for NR state tax be for me since I don't have a state return? On a Federal return?

Nope. You'd just pay more tax, because you have no resident state income tax to get a credit on. If you itemize deductions on your federal return, you'd get part of it back by including the nonresident state income taxes on Schedule A . . . but only if they're greater than what you can claim for sales tax, so you might be SOL.

Patzer

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