Avoiding state income taxes

[Colonel_Buck]

If your legal residence is in Vancouver Washington (no state income tax) but you work in Portland Oregon (state income tax), do you have to pay Oregon state income tax?

[The Observer]

I am guessing that Oregon laws require this, but they may allow you to file a non-resident return which may provide for a lower tax rate than a resident Oregon citizen would have to pay. You will need to check out the tax laws for Oregon.

[LaVidaRoja]

Generally, tax is imposed in the state where it is earned. Not the state of residence. Some years ago, there was a move to advertise Nevada as a tax haven. Set up a Nevada corporation, do your business in California, and claim to be a Nevada resident. California Franchise Tax Board had quite a program imposing tax on those. Mostly they were PSC, doctors and similar service providers who claimed their income was tax-exempt because their corporation was registered in Nevada.

[Arthur Rubin]

Generally, tax is imposed both in the money is earned and in the state of residence (or domicile). There is almost always a credit in one state or the other for the double-taxed income, but, if one doesn't have a state income tax, there's no offset.

If I recall correctly, the credit is in the residence state, unless both states specify otherwise.

[obadiah]

If your legal residence is in Vancouver Washington (no state income tax) but you work in Portland Oregon (state income tax), do you have to pay Oregon state income tax?

Yes. The rule is generally that they tax you around the border either under state residency OR if it is earned in the state.

[rogfulton]

In my return preparer life, I had two clients who were paid athletes (football and basketball). Every year, we filed for them in states they played in which had state taxes, even though they lived here in central Texas. Luckily, the returns were for amounts low enough they received 100% refunds from the other states.

Not exactly the same situation, I guess, but similar.

[fortinbras]

My experience, a century ago, when working in DC while residing in Virginia, was payroll deduction in the state where earned altho the money might be refunded when taxes filed in state where resided.

[KickahaOta]

Commenting specifically on whether Oregon charges income tax for income earned in Oregon by Washington residents: absolutely. And unlike Washington -- which only sporadically tries to do anything about Washingtonians crossing the border to shop in sales-tax-free Oregon -- Oregon gets extremely snippy and garnishy when Washingtonians try to skip out on income tax on their Oregon paychecks.

One of numerous articles about this.

[KickahaOta]

And to be fair, I should add that Washington gets equally testy in another situation: The annual rate to register a car in Washington is above average, while Oregon's is one of the lowest in the nation. So Washingtonians who live near the border will sometimes get Oregon plates, using friends' or relatives' Oregon mailing addresses. This is illegal under Washington law, and State Patrol vehicles have been known to stake out Washington office parking lots looking for Oregon plates, and fine the living daylights out of folks they can prove to be Washington residents.

The beautiful catch in the scheme is that it would be much easier to convince a Washington patrolman that you're Oregonian if you had an Oregon drivers' license to go with the plates; but if you do that, Oregon is going to expect you to file an income tax return.

[operabuff]

My experience, a century ago, when working in DC while residing in Virginia, was payroll deduction in the state where earned altho the money might be refunded when taxes filed in state where resided.

I think your memory deceives you. One of Washington DC's grievances is that they are not allowed to tax the income of the residents of Virginia and Maryland who work in the city.

http://www.washingtonpost.com/wp-dyn/co ... 01052.html

And Maryland and Virginia have a tax reciprocity agreement - if you live in MD and work in Virginia, you are exempt from Virginia tax and pay MD tax. Vice versa if you live in Virginia and work in MD.

http://www.washingtonpost.com/wp-dyn/co ... 01052.html

West Virginia and Pennsylvania are also part of this agreement.

[Number Six]

Why not call them? The state DRS people are sometimes like the Maytag salesman glad to be of service. When I contact the state agency people they are not looking to get good citizens in a world of hurt.

[noblepa]

Back in the early nineties, I worked for the accounting firm of Ernst & Whinney (now merged with Arthur Young to form Ernst & Young). I was not an accountant or tax preparer; I was in IT.

Anyway, E & W was a pure partnership, with offices and/or clients in something like 36 states.

I was told that, since partnerships have no such thing (at least they didn't then) as retained earnings, all of the firms profit had to be apportioned to all of the partners. That meant that, not only did the partners have to file Federal tax returns, they had to file, and often pay taxes in all of those 36 states. Fortunately for them, the firm had the less senior tax practitioners prepare the returns for them. This was true even for a partner who never left his/her home state.

[noblepa]

My experience, a century ago, when working in DC while residing in Virginia, was payroll deduction in the state where earned altho the money might be refunded when taxes filed in state where resided.

I think your memory deceives you. One of Washington DC's grievances is that they are not allowed to tax the income of the residents of Virginia and Maryland who work in the city.

http://www.washingtonpost.com/wp-dyn/co ... 01052.html

I don't see why DC could not do that tax non-reseidents earnings. Virginia and Maryland law would have no effect in DC, since it is not part of either state.

I work in Cleveland and live in one of its suburbs. I pay 2.5 percent payroll tax to the city of Cleveland.

Or, is it Congress that will not allow DC to do so? Although DC has a great deal of autonomy, it is technically under the control of Congress.

[Duke2Earl]

Yes indeed, I am a now retired partner at one of the Big 4 accounting firms. While active in the firm I paid state income taxes in every state we had an office.....some 34...and at least 4 cities as well. The firm had reached an agreement with the vast majority of those states and cities and filed a group return for those states and just sent the partner (me) a report of what they paid on my behalf so I could use it to file my return for my home state. Somehow they were never able to reach any agreement with California. You were allowed, if you were a masochist, to opt out and file your return for each of the states. I was told by one of the few who did that that you could save a couple of hundred bucks that way....perhaps worth it if you value your time as worth nothing. But since I have retired now I just file for my home state.

[operabuff]

My experience, a century ago, when working in DC while residing in Virginia, was payroll deduction in the state where earned altho the money might be refunded when taxes filed in state where resided.

I think your memory deceives you. One of Washington DC's grievances is that they are not allowed to tax the income of the residents of Virginia and Maryland who work in the city.

http://www.washingtonpost.com/wp-dyn/co ... 01052.html

I don't see why DC could not do that tax non-reseidents earnings. Virginia and Maryland law would have no effect in DC, since it is not part of either state.

I work in Cleveland and live in one of its suburbs. I pay 2.5 percent payroll tax to the city of Cleveland.

Or, is it Congress that will not allow DC to do so? Although DC has a great deal of autonomy, it is technically under the control of Congress.

Congress will not allow DC to do so.