If you travel to say 10 states in a year for business, you are actually liable to apportion your income by days of travel, and pay taxes and file returns in all 10 states. Yes, it is true, that is if you go strictly by the tax rule books. Though this may vary from state to state, it’s largely true in most cases.
So far, various state tax authorities have gone easy on this complicated tax collection mechanism. But with the availability of advanced data collection, storage and mining technology, the taxmen are actually considering imposing these rules on regular, middle-income taxpayer. Till now, it was only the celebrity actors and sportsmen who were under the radar of various state tax authorities. But these days, tax compliance authorities armed with easy access to information are now targeting regular people also.
It would have been difficult to enforce these rules by going after individuals, but state tax authorities are opting for the easier and smarter way of going after companies to enforce them on their employees. Companies are increasingly reporting incidents of taxmen asking for travel information and state tax liability of employees falling under higher income brackets during tax audits. A company, if found to be non-compliant, can even be fined for not collecting tax on behalf of the state.
In this tussle of revenue between the states, it is the average taxpayer who will have to bear the brunt. Imagine the administrative hassle of keeping record of all your travel, then calculating tax owed and paying them in more than one or two states. And come this time of the year, you will have to sit down to file returns in all these states of the tax owed and paid. Even if your company does the tax deduction and submission on your behalf, it’s still significant cost of time and effort.
And all this for what, so that the more vigilant states can pull through a little extra tax money from the accounts of the other states. If all the states put to enforcement this complicated practice, it will hardly be much gain for anyone, as the benefit would eventually even out. It will simply increase the administrative hassle and cost, both on the part of individuals and their employers, and even on the state tax authorities. After all, how practical can it be for a state to go after miniscule sum of tax revenue from an average taxpayer.