The State Tax Grab

City Journal ^ | Winter 2014 | Steven Malanga

[Sir Napsalot]

Cash-hungry governments are shaking down nonresident businesses and workers.

Revenue-hunting states have lately gone beyond raising their own taxes; now they’re trying to shake down firms and workers in other states. Stretching the limits of the U.S. Constitution’s Commerce Clause to the breaking point, local revenue agents have seized out-of-state trucks simply passing through their jurisdiction, refusing to release them until the firms that dispatched them fork over corporate income taxes. Finance departments have slapped out-of-state businesses with bills for thousands of dollars in corporate back taxes, based on little more than a single worker visiting the state sometime during the year. And tax agents have targeted employees who work remotely for in-state firms, claiming that they owe personal income taxes, even when they’ve never stepped foot in the taxing state.

Technological change has unleashed some of this unprecedented aggression. In a world where businesses can offer products to customers thousands of miles away, or sell sophisticated services, such as cloud computing, that seem to originate from nowhere, states that once levied business taxes only on physically present firms have been coming up with far broader definitions for what, and who, is taxable. At best, the states have inconsistently defined what falls under their tax jurisdiction; at worst, they’ve used the transforming technological landscape as an excuse to grab revenues from surprised (and outraged) new sources.

[Sir Napsalot]

Cartoon showed CA and NJ lead the pack.

Also if you haven't seen this article, The Pension Fund That Ate California, it is still relevant today, if not more so.

FYI, Steven Malanga is the author of Shakedown: The Continuing Conspiracy Against the American Taxpayer

[Sir Napsalot]

>>> CA and NJ lead the pack.

Not surprisingly (no, really), "In a 2011 CFO magazine survey, finance officers at large companies judged five states—California, Massachusetts, New Jersey, New York, and Michigan—as particularly assertive in going after out-of-state revenues."

[The Working Man]

I REALLY recommend that everyone reads the entire article. Very enlightening.

It sounds like a PERFECT reason for the commerce article in the Constitution. Only our feckless congressmen don’t want to tackle it because of all of the revenue it generates for their states via extortion of out-of-state companies and the onerous steps they have to go through to protest through the state court system. Which sounds just as fair as family court is to non-custodial parents and child-support payments.

[DugwayDuke]

Back in the 90’s, I had the choice of moving to California or Utah. I choose Utah because of one issue. This was to be a temporary move. California, at that time, considered your retirement income taxable to the state, even if you did not live in the state after retirement, as long as, sometime in the past, you had filed one state income tax form in the state.

California did lose the federal law suit but it looks like they’re trying similar things.

Congress will be required to act. If these states are acting as they are with corporations, why couldn’t a state require an individual attending a meeting in their state to file a state tax return for the income they earned while attending? Or, suppose you’re on paid leave and you spend time in a state, why couldn’t a state require you to file a return for that income?

[Mouton]

why couldn’t a state require an individual attending a meeting in their state to file a state tax return for the income they earned while attending? Or, suppose you’re on paid leave and you spend time in a state, why couldn’t a state require you to file a return for that income?

Actually it already is happening. My wife who works in Florida went to a training course in Minn where her company is headquartered. She got a tax bill for her time in that state. I went balistic but that seems to be the norm these days and fighting them over what is basically a few dollars is not economically worth it.

[Alberta's Child]

Much as I hate to say this, I can understand why states like New Jersey, New York, Massachusetts and Michigan are very aggressive about enforcing tax laws on out-of-state businesses. These states all have large metropolitan areas where companies can be domiciled in one state and do a lot of business (even all of its business) in a neighboring state. In cases like this, the state must enforce these tax laws simply to protect their own businesses from what would clearly be unfair competition.

What's interesting about this is that the laws also work the other way. A person who earns a lot of money in a high-tax state has perfectly legal ways to reduce the tax burden in that state by working elsewhere for part of the year, and meticulously documenting the time they spend out of state. This is what prompted Rush Limbaugh to start broadcasting some of his shows out of Florida instead of the "flagship station of the EIB Network" in New York City -- a move that later became permanent. I've long suspected that this is also why a team like the New York Yankees sends players to their training facility in Florida whenever they are recovering from injuries. If they are working in Florida for those weeks or months, they don't pay New York income taxes (and Florida has no income tax).

[Alberta's Child]

States have always had the legal authority to do exactly what you've said here. The problem was always in enforcement, and that the cost of collecting the taxes exceeded the tax revenue the state would get in most cases.

In your wife's case, it might be worth your while to have her check with the company's HR office to see how the state of Minnesota even knew about her attendance at the training course. I don't see how they would know that unless the company turned over your wife's name, address and maybe even her Social Security number to the Minnesota authorities.

[BuffaloJack]

I’m getting fed up with the state nickel and dime antics to grab more money.
In the past 2 years I got a speeding ticket for 31 in a 30mph zone ($180), maintaining an illegal bird feeder ($250), and having grass longer than 10 inches ($200, the grass was 4 inches long and about a dozen dandelions had flowers that shot up to 11 inches in an overnight growth spurt). These leftists are desperate for cash and will use any means available.

[Sir Napsalot]

Why do some states need the aggressive and creative antics for defining new tax nexus?

“The Pension Fund That Ate California” is a hint.

Starve the beast(s).

[Organic Panic]

I got nailed for parking facing the wrong way. IN MY OWN DRIVEWAY. Apparently the police department needed some cash. Nearly ever car had tickets in the morning. Rediculous things like too far from the curb, cracked windshields, basically anything the could find. It was the first time it ever happened. The city must have gotten an earful because the raid hasn’t happened since.

[xrmusn]

Well, as the ‘TAKERS’ continue to grow and the ‘GIVERS’ continue to recede, Government finds more creative ways so as they will be able to keep the ‘TAKERS’ happy.

I guess in some ways you could call the Govt the modern day “ROBBIN HOOD” —

They take from the producers and give to the slackers. No one has taken into consideration what will happen when the slackers completely overrun the producers.....
Of course the ‘Robbin Hoods’ will make sure THEIR needs are taken care of before the slackers get theirs, so as the producers drop off, the slackers start getting less...THEN it will become ‘fun’ to see the reactions....

Think it was Chris Rock that had the routine of his father taking him ‘downtown’ NY and observing all the ‘white guys in suits and briefcases scurrying about’...Chris ‘claimed’ his father said - “Don’t bother THOSE folks, it is because of them that we have a lot of what we have - THEY are the taxpayers”...(or something along that line).

[Oatka]

Back in the ‘90s, a contract programmer buddy of mine took a gig at the Motorola plant in Florida. He later said that the state would send guys around the parking lot, looking for out-of-state tags. If you were there for over a month, the state made you buy new tags because you were a “resident”.