Category:State and Local Tax

From TaxAlmanac

We may ultimately need a separate category for Multi-state taxation, but for now discussions on that topic are included here.

Relevant discussion posts/excerpts

This is an excerpt from a 2008 discussion post by KatieJ (the question at hand was w/r/t to AZ and PA, thus their multiple mentions):

"Here's the general principle: States may tax residents on ALL income, regardless of source; and most do so, including PA and AZ. States may also tax nonresidents on income from sources within the state; all states that impose comprehensive individual income taxes do so, including PA and AZ. Income from personal services has its source where the services are performed. Therefore, if you are a resident of State A and you work in State B, both states generally will tax your earnings.

There are several ways in which the double taxation inherent in this system is mitigated. The most common is that the state of residence allows a credit for the tax paid to the source state, limited to the proportion of the resident state tax that relates to that "double taxed" income. In that case, the residence state in effect cedes the tax to the source state. There are a few pairs of states that stand in reverse credit relationships to one another; CA and AZ are an example of such a pair. A resident of one of those states working in the other looks, not to the state of residence, but to the source state for a credit for the tax paid to the residence state. Thus the source state cedes the tax to the state of residence.

Also, there are some pairs of states, mainly contiguous, that have reciprocal agreements whereby a resident of State A working in State B pays tax on his earnings only to State A. PA has reciprocal agreements with several other states, but not with AZ."

There's similar info from KatieJ, with a bit more emphasis on the effect of multistate activities on flow-through entities, here.

Another KatieJ excerpt from a discussion that's been moved to the archives:

"States have the power to tax all of the income of residents, regardless of source. With a few exceptions, states that impose comprehensive individual income taxes (more or less parallel to the federal individual income tax system) exercise that power. With very few exceptions, the state where you live will tax all of your income. It does not matter where you earned it -- Texas, Florida, a foreign country, the space station or the moon, it's all taxable in your home state.

States also have the power to tax income of nonresidents arising from sources within the state. If Texas or Florida had an individual income tax, they would have taxed the income you earned by performing services there. In that case, North Carolina would have given you credit for the tax you paid to the source state, limited to the proportion of your North Carolina tax liability that related to the "double taxed" income. Since neither of those states has an individual income tax, there is no liability to those states, and no credit."

Adding nexus as a search term.

Discussions that have been categorized with this topic