We’ve been talking a lot about the big Cross-Border Tax Grab that is going on between states. The battle is heating up and the only ones who can solve it – Congress and the US Supreme Court – don’t want to get involved.
Make no mistake, states want your money and they are using every opportunity they can to assess taxes on you, especially if you don’t live in their state.
You might ask, though, “Even if they find me, how can they get anything anyway? I don’t live in that state or have any assets in that state.”
- Lawsuits. Generally speaking, states won’t allow other states to sue their residents over unpaid taxes. So if you live in Nevada and owe California taxes, the California government can’t necessarily file a lawsuit against you in Nevada. Does that mean you’re off the hook, free and clear? No. If you fail to defend yourself, or if you defend yourself in California and lose, the state CAN take that judgment and come to Nevada to have it enforced.
- Reciprocity Statues. Many states depend on reciprocity statutes instead. A reciprocity law essentially says that states will uphold each other’s laws, unless doing so would be unconstitutional or directly conflicts with existing state laws. It also means that where two states have reciprocity statutes, you could find yourself defending a collection lawsuit in either state, where normally a lawsuit wouldn’t be allowed.
States with Reciprocity Laws include: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, west Virginia, Wisconsin and Wyoming.
- Collection Agencies. States can and will send judgments to collection agencies, as well as engaging attorneys to begin collection actions. California recently set aside a large sum of money earmarked for out-of-state legal fees to begin collection actions over its new economic nexus laws that started on January 1, 2011. If your state sends your judgment to collection, you can also expect it to increase. Agencies are typically authorized to add another 20% onto the total bill as part of their collection fee.
- Seizure, Business Closures. Once a state has a legal right to collect from you, they have a wide range of ways to enforce that collection. It’s not uncommon to see businesses closed down for failure to pay sales taxes. In Rhode Island, for example, some 1200 businesses were recently shut down by tax collectors over unpaid debts. The shut down procedure involved tax collectors appearing at the business location, with a lock and chain, to shut down and secure the doors. Even businesses that had paid their taxes were closed down until they could prove that the taxes had been received by the state.
- Help from Unexpected Sources. In a recent ruling, the U.S. Securities and Exchange Commission got into the tax collection and penalty act. A public company, which had spun off from its parent company in 2003, had some major sales tax collection issues, due to outdated and inadequate tax software. They cleaned up their act in 2007, and paid a total of $4 million in taxes and penalties, before being pronounced fully compliant in 2008. But some 3 years later (in January of 2011), the SEC got involved and fined the company another $200,000, for failure to comply with securities laws that require companies to obey all state laws and pay taxes on time.
Learn more about the Cross-Border Tax Grab and, more importantly, what you can do about it, at http://www.CrossBorderTaxGrab.com