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State Tax Aggression


Edsel

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I encounter a few states in my practice - many of us do.

I've noticed an increasing trend of states to assess taxes and penalties in error.  These "errors" are never in favor of the taxpayer and are extremely biased in favor of the states.  So much bias that I have to wonder whether these "errors" are deliberate.

I may be having a case of my legendary paranoia against taxing authorities, but my best guess is most of us have encountered these "errors" and agree that they are rarely, if ever, in favor of the taxpayer.

If these are deliberate, one possible supposition is that taxpayers will just pay the assessments in fear of further interface with state government.  And in fact, many taxpayers will do exactly that because

  • Taxpayers would rather pay nominal assessments for $100 or less just to avoid having to fool with it.
  • Some taxpayers really have something to hide and do not want any more interface with the state than possible.

My specific question:

If states are really involved in this practice, do they keep a record of who pays them versus who resists? 

In other words, "We have overcalculated the failure-to-file penalty.  36,122 residents have paid without protest, whereas 2,980 residents have refused payment..."

Is this paranoia on my part?  Or am I giving the state too much credit?  Or could this really be happening?

 

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I think this is happening; I've been watching it for years.  Also in my experience people pay up in fear.  I've also asked people how much they want to fight a $50 unfair penalty - enough to pay me $75 or $100?  No, they are banking (literally) on fear and on those fines being lower in value than the money it would take to fight it.  To my mind, it's extortion on the order of "You've got a nice little business there, it'd be a shame if something were to happen to it" and about that level of immorality.

It's also to be expected when states are chronically hungry for any and all money they can get their grubby mitts on.

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1 hour ago, Catherine said:

It's also to be expected when states are chronically hungry for any and all money they can get their grubby mitts on. 

To wit:  This year CT, with no announcement, decided that every state resident who receives a pension will automatically have 6.99%withholding for state income tax unless they fill out a new W-4P.  That rate normally applies to singles making $500+k and couples making $1m+.  So now everyone who gets a $20k or $11k pension will give CT 6.99% and only get it back if they file a state return (or correctly fill out the form).  We have had probably a few hundred calls from clients asking how to fill it out.  I worry for those who don't make enough to file returns and have no one to call, so they throw the envelope from their pension place in the pile and soon see their small pensions diminished; they may not even know to file next year to get the confiscated funds refunded.

The W-4P was also changed so that most folks can't understand it.  It used to let you enter a code for the withholding table to use OR spaces to enter how much you want withheld, either a dollar amount or percentage.  Now you can only enter a code (the form comes with four pages of instructions and a bunch of tables, like any nontax person can wade through that).  I am convinced that the state made this move explicitly to extort funds from people who don't normally have to pay state income taxes or maybe just a little.  Now the state is grabbing a lot and they will have to jump through hurdles to get it back.  I am angry about all the time it took up to answer all those calls but even angrier about what they are doing to retirees, especially those who need every dollar they get just to live.

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Sounds like maybe I am not paranoid.  The CT example by Sara was especially bad, since it appears this is not an error, but a deliberate action to blindside thousands of people.

Like Bart's Kansas City people, Tennessee bills people all the time for fictitious taxes and penalties.  Most of the time the notices don't even have an explanation.  And curious enough, the amounts are nearly always under $100, meaning there is overwhelming reason for a taxpayer to simply write a check rather than to pay me to straighten out the mess.

Referring to my original question:  I wonder if a taxpayer simply pays them, will they be more than likely to receive another such fictitious bill?  Or if they engage me to resist, will they be less likely to be bullied by the state next time around?  I could conclude that Tennessee is tracking the responses, but I might be giving them too much credit.

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12 hours ago, Edsel said:

I wonder if a taxpayer simply pays them, will they be more than likely to receive another such fictitious bill? 

I don't think they are that clever or that competent.  It's my belief that they set their computers on ultra-fussy and then apply algorithms to look for low-penalty amounts and send those out first.  Low effort, and likely gets in the most money.  Higher penalties people will fuss over.  $30, $50, $75 -- too low to hire someone to fight it, no idea how to do it themselves, amount is annoying but not onerous (for most).  That's the sweet spot.

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I've posted something like this before, and received a resounding echo of [crickets] and a few frowny emoticons.  Being unpopular never seems to derail me, so I'll try again:

Criteria for the below includes states where I have had experience, states with no experience but reputation from other preparers, tax rates, other non-objective stuff...

WORST 5 STATES:

  1. New Jersey (administratively bad & charges $300 if you pay by check)
  2. Rhode Island (reportedly worse than "Taxachusetts", who miraculously is not on my list)
  3. California (huge superstructure and the worst rates)
  4. Illinois (business hostile and intentionally slow)
  5. Minnesota (high rates for a midwestern state and very, very aggressive.  Can find you on the moon.)

BEST 5 STATES:

  1. Nevada (business friendly, no personal or corporate tax)
  2. Alaska (low tax, no personal, and no superstructure taxing authority)
  3. Wyoming (no personal, and efficient)
  4. New Hampshire (no general personal or general sales tax)
  5. Montana (no sales tax, friendly to business and individuals)

The low (or nonexistent) taxes in the best 5 are not by themselves the only seeming criteria.  When a state cannot collect huge amounts of tax, the state cannot set up an oppressive and irresponsive or non-caring superstructure.

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2 hours ago, Edsel said:

I've posted something like this before, and received a resounding echo of [crickets]

Well, you just posted almost this exact thing back in mid-May and no one had much to say about it then and you also took exception to the comment about anyone's list (from members here, at least) being rather biased and arbitrary which I happen to agree with. After all, most of the active members here prepare a limited number of states on a regular basis, of sufficient volume, and/or with a number of years of experience with those states to even be able to rate them with any sort of valid criteria, and you yourself listed only 10 states, not all of which you have direct experience with.  I would venture a guess that some of the members here may not have ever prepared 10 different states in their entire careers, let alone have current experience worthy of commenting on each of them, or have had the need to interact directly with the state agency for any reason.

 

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Thank you Judy for posting something that was necessary to be said.  Some discipline from a few members would make this group more professional.

Certain members who post here absolutely turn me off the to point where I don't even enjoy reading the posts because they  have become more political and social rather than educational and professional.

I came to this board because a member who occasionally posts here provided this site on a professional association chat board and was looking to find another group from which to learn from - even though I don't use the specific software that brought the group together.

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This is not the first time Mr. Golar has deemed me to be unprofessional. 

The reason state taxes have such a personal appeal is because I have had two government contractors with a requirement to file in every state where they have a contract.  Not only that, but one of them was an S corp, meaning I had to prepare personal returns in those states as well.  Although not everyone has had the same experience, I have filed probably 25 different states (without counting), some 15 in one year for one customer alone.  Additionally, Tennessee is a long and narrow state, thus we are never far away from one of our 8 contiguous states, all of whom have state taxes.

I have also been accused of posting political issues (on a few occasions correctly).  The issue of state taxes might be considered by some to be political if you believe higher taxes support more government services and social progress.  That was not the intent of the post. but I obviously do believe a super institutional structure attaching to a taxing authority does result in a capricious and self-centered administration.

 

Edited by jklcpa
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Sorry, I was referring to the CT W-4P.  You actually found a 1999 form?  I can't even find current forms on their convoluted website!  One thing noticeably missing from that website is any announcement that this change was being made.  I am on their listserve too, and even that was silent.  As usual, the calls from clients alerted us to this disaster.

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Actually, I think Sara meant the 1999 Connecticut form W-4P.  Which if I Google, I can get a copy here https://www.ct.gov/drs/lib/drs/forms/1999forms/withholding/ct-w4p.pdf

But the top answer is still the 2018 form here http://www.ct.gov/drs/lib/drs/forms/1-2018/wth/2018-ct-w4p.pdf

And there is a HUGE difference.

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16 hours ago, jklcpa said:

Google brought it right up

I have often found that Google will do a better search of federal OR state official sites than the embedded search engines.  For example, if at MassDOR I specify that I'm looking for tax year 2014 form whatever, they first page (or three) of "hits" will be years OTHER than 2014.  Not so with Google.  Mostly.

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