Owing income tax debt to a taxpayer’s State of residence can be as severe as owing taxes to the IRS. Each State contains its statutes and codes regarding state back taxes. Additionally, each State has a policy when dealing with tax debt situations. Understanding how taxes work in each State requires knowledge of laws, procedures, and requirements of the State’s tax division. In many cases, state governments can be more aggressive than the IRS in their collections process. For example, the California Franchise Tax Board will place a wage garnishment on an unfiled tax return assessed balance. The Board will not remove that wage garnishment even if the taxpayer enters into a payment plan. Once a wage garnishment occurs, the only relief available is to reduce the percentage of garnishment. Another tax relief option for a state wage garnishment is to qualify for financial hardship or a state Offer in Compromise.

Offer in Compromise for State Taxes

As far as tax settlements go, most states have a settlement procedure similar to the IRS’ Offer in Compromise program. Each State may differ from the other, but the goal is the same. If a taxpayer can prove they have no disposable income, and no assets to liquidate, they may qualify.

Additional Tax Relief Options for State Taxes

If an Offer in Compromise is not an option, there are other tax relief programs available. Some of the tax relief programs offered by states include Installment Agreements, Penalty Abatement, Innocent Spouse Relief, and other programs. In general, state tax relief programs mirror those of the IRS.

Getting help with State Tax Relief

As with federal tax resolution, you should consult a tax relief professional for your state tax debt issues. Additionally, the tax relief professional you ask should be experienced and knowledgeable about your State. For example, to assist a taxpayer in Oregon, the tax resolution firm should advise the taxpayer correctly. Unless the taxpayer hires a licensed professional in Oregon, a tax specialist in another state can only help with paperwork negotiations rather than over the phone. For New York, most forms require a signed notary and therefore can be more costly. In Maryland, the power of attorney form does not exist. Instead, the State accepts the Federal 2848 form with a few variations. At Platinum Tax Defenders, we work with taxpayers across the country to resolve their tax debt issues. We stay current on tax codes in all 50 states and can assist you with your state tax issues.

Paying taxes to more than one State

Do you live or work in more than one State? How do you determine your state income taxes? The government requires that residents pay tax on all of the income they receive during a calendar year. Residents also get tax credits for any taxes they pay to other states. For residents who live in a state part of the year, they follow each State’s rules. Some States may separate the income, and tax only their State’s revenue. Additionally, a state may calculate the tax on all income as if the taxpayer was a resident. Then, the State would allocate the tax based on “in state sources/all sources.”

When should I file more than one State income tax return?

Taxpayers may have to file more than one State income tax return if they have income from other states. Examples for when you have to pay more than one state income tax return include:

–    You are an S corporation shareholder, and the company does most of its business in another state.

–    A rental property you own is in another state

–    You’re a partner in an out-of-state partnership or corporation

–    You are the beneficiary of a trust or estate that has interests in another state.

In most cases, your resident State allows you to take credit for the taxes you have to pay to other states. If a California resident receives $20,000 from a rental building in Arkansas, they pay $2,000 in tax. Since the individual is a California resident, California also taxes the $20,000 but provides a $2,000 tax credit.

Determining what you owe to other states

It can be confusing trying to determine what you owe to other states in taxes. For that reason, it’s helpful to work with a tax professional who’s knowledgeable in different tax codes in different states. If your work crosses many state lines, your tax obligations could get overwhelming. In this case, working with a tax professional will help you streamline the process, and avoid owing any states tax debts.

State Failure to File Penalties

Many states have tax penalties that are similar to the IRS. Many states have civil tax penalties for failing to file an individual tax return. Similar to the IRS, California, New York, and Pennsylvania charge a 5 percent penalty each month. Virginia’s failure to file penalty is 6 percent, but only if your tax return is more than six months late. Some states charge a failure to file even if you don’t owe any taxes.

State Failure to Pay Penalties

Similar to the IRS, states also have civil penalties for underpaying or failing to pay a tax balance. For more U.S. states, the failure to pay penalty is lower than the failure to file. Penalty amounts differ for each State depending on the type of tax and the lateness of the payment.

Interest on unpaid state taxes

When you don’t pay state income tax, interest will accrue. However, interest varies by State, so it’s essential to check with state tax laws first.

Additional consequences for unpaid state taxes

Depending on the State, there are further consequences for due taxes. Here are some of the effects a state can impose on taxpayers who do not pay their balance.

–    Wage garnishment and other tax levies

–    Driver’s license suspension or not approved for renewal

–    Occupational and professional licenses suspended or not accepted for renewal

–    State tax liens

–    Hunting and fishing license suspended

–    Business license revoked or not approved for renewal

–    Placement on a public delinquent list

–    Jail time

Don’t neglect to pay back taxes to the State

Back taxes owed to the State is a severe issue, similar to unpaid federal back taxes. It is wise to contact the State as soon as possible and arrange to pay off the back taxes you owe. Arranging for a tax debt payment plan with the State should be handled by an experienced tax resolution professional. A tax relief expert will know the rights you have in each State. Many states will have different collection actions they can take to get you to pay back taxes. Each State enforces its collection actions to enforce the collection of tax debts. Similar to the IRS, some states will impose tax liens and levies, and seize your assets to recoup the tax you owe. Platinum Tax Defenders has experience working with clients across the country to resolve their tax issues.  Call Platinum Tax Defenders today for a free consultation.