States Extending Income Tax to Travellers

March 23, 2010

Yesterday, the New York Times had an excellent piece about states imposing income tax on nonresidents, entitled “States Look Beyond Borders to Collect Income Tax Owed.” An excerpt:

If you live in Boston but spend one out of 250 workdays this year in New York, you owe New York income taxes on 1/250th of your salary. And vice versa if you are a New Yorker visiting Boston – or Anywheresville, for that matter – for business.

Such laws have been on the books for decades, and they vary by state. But it is only recently, accountants and tax lawyers say, that many states appear to have picked up enforcement, expanding it beyond the wealthiest celebrities and athletes.[…]

Once upon a time, state tax officials relied on the sports pages and celebrity magazines to see when well-known higher-earners came to town for work. (Yes, even the taxman reads Us Weekly.) For everyone else, it was largely a “don’t ask, don’t tell” world, says James W. Wetzler, the former tax commissioner for New York State, because it was not cost-effective for states to monitor every bricklayer and lawyer crossing a border.[…]

But now states have greater access to data warehouses that help them better track taxes owed. Real estate transactions, federal data from the Internal Revenue Service, commercial license plates, traffic tickets, bids for government construction projects – all this information, newly digitized and dumped into a computer system, can help states find tax scofflaws.

We at the Tax Foundation have long followed the travail of “jock taxes,” a term that may be obsolete as states start going after everyone who travels on business. A bill pending before Congress, H.R. 2110, the Mobile Workforce State Income Tax Fairness and Simplification Act, would impose standardized rules for state income taxes on nonresidents, but would exempt athletes and entertainers.

The Times’ Economix blog followed up with a map from the Council on State Taxation (PDF link):

More on issues of state overreaching on taxation here.

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