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How to End Gov. Cuomo’s Tax Grab: Congress Should Enact Income Tax Reciprocity
You may have seen the stories over the past couple of days about New York Governor Andrew Cuomo promising to send tax bills to all the temporary workers who volunteered in or were deployed to his state to help their beleaguered hospitals and medical staff with coronavirus rescue and recovery.
There’s a way to fix that, and Congress can do it as part of their phase 4 recovery bill. Here’s how.
One of the issues I worked on a few years ago was preserving Pennsylvania’s and New Jersey’s personal income tax reciprocity agreement from 1977. Then-NJ Governor Chris Christie in 2016 infamously canceled the agreement in a budget dispute with the legislature, before reversing course. He underestimated how many people it adversely affected (some 250,000 in both states) and the political reaction to his antics.
What are reciprocity agreements? They allow citizens who live in one state while working in another to pay income taxes based on their legal residence, not where they work. If you lived, as I do, in Pennsylvania but work, as I did, in New Jersey, I paid PA (lower) income tax. Some 20 states have such agreements, most famously in the Washington, DC area between VA, MD, and DC, much to the chagrin of DC. Pennsylvania has six such agreements, including with Indiana.
So now we have Gov. Cuomo promising to send tax bills to emergency workers deployed to NY to help with coronavirus rescue efforts after he begged for (and received) such assistance. NY has no reciprocity agreements. It is not hard to figure out why.
New York City’s workforce includes tens if not hundreds of thousands of residents from neighboring Connecticut, New Jersey, and even Pennsylvania. All those workers pay New York income taxes (not to mention New York City’s infamous income or wage taxes). That’s a lot of money. A former New Jersey state treasurer once projected that the lack of a reciprocity agreement costs the state some $3 billion per year. Reciprocity agreements make a lot of sense since you’re likely using more public services (police, fire, schools, etc.) where you live than where you work.
So, if you work in NY for more than 14 days, even if you live in Virginia, you’ll get a tax bill from NY. Cuomo could ask his legislature to waive that requirement, but no, he wants your money.
If Congress insists on a phase 4 coronavirus relief/recovery package, they should, at a minimum, include personal income tax reciprocity for any emergency workers volunteering in, or deployed to another state to assist in coronavirus rescue, recovery, or mitigation. I think my friend, Senator Chuck Grassley (R-IA), chairman of the Senate Finance Committee, is just the person to champion it. New York and all states who have suffered revenue losses from this are likely to get some form of a taxpayer bailout from Congress, anyway, so this is a no-brainer.
Who are these people Cuomo wants to tax? Essential workers, like doctors, nurses, emergency medical technicians, ambulance drivers, etc. You know, heroes. I wonder he’ll try to tax the estates of those workers who died from contracting coronavirus while working in New York? It would not surprise me if he did.
Why not require it forever for all states? That seems an even better solution.
Right now people get a deduction on their federal taxes for their state taxes. Which means people in low tax states subsidize people in high tax states, and also makes it easier for states to raise their taxes. In addition to reciprocity , this deduction should be cancelled. Unfortunately, the Democrats currently control the house, so it is not likely to happen.
I had a relative who commuted 2 hours each way from Philadelphia to NYC on Amtrak. It’s highly doubtful that’s possible from Washington DC to NYC, which is over 200 miles. So if you’re from Virginia, you’ll need to get a place to stay and probably purchase food, etc. The latter items add to NYC revenue.
When I was an independent contractor, I established a Subchapter-S corporation to pay Indiana income taxes on the net profits, even when working in Michigan and Ohio. Your lodging and transportation costs are deductible, which helps with the cost (<$200) of a Sub-S setup.
If you have a very high income, you might save money by living in a zero income tax state. However, such states like Texas make up the difference in property tax for the equivalent life style. Taxes are a part of life.
I would be all for that, but it runs afoul of federalism and “states rights,” although I believe the DC area’s reciprocity situation was mandated by Congress – needs verification.
We do get a deduction of up to $10,000 for state and local taxes. Mine here in PA are more than double that. But I’m not complaining. I do not want federal taxpayers in places like Oklahoma and Arizona subsidizing high tax states like NJ and NY and their bloated governments and corrupt pension plans. I want to keep the pressure on those states to lower their taxes, starting by reducing the cost of their bloated, inefficient governments.
It’s one of the reasons the GOP put the $10,000 SALT (State and Local Taxes) limit in the last income tax law.
Tennessee tried for years to subject all FedEx pilots to their state income tax. Imagine a pilot living in Alaska and domiciled there – Tennessee still wanted their cut.
IIRC NY state taxed active duty military members who listed NY as their state of residence. Which is why so many people claimed TX or FL as their state of residence.
Sounds fair to me. It is the nature of income taxes and states. Are people paying the tax really offended? Did they get paid more, because NY wages are higher? Are the “volunteers” offended at getting more pay??
Seriously? If your company sends you to an out of state location for three weeks you should be subject to the other state’s taxes? What about people who travel for a living? It wasn’t unusual for my wife to spend two weeks out of the month flying say, Indianapolis to Memphis and back every night, and sleeping in an Indianapolis hotel. Should she have been subject to Indiana taxes?
That’s a weird definition of “fair.” Many EMTs, and I know of one, were deployed by FEMA (Federal Emergency Management Agency). It was not much of a choice. There were there for 3-4 weeks. Now, they will have to file two state income tax returns, and their home state will have to credit the taxpayer for any exorbitant taxes they pay to the State of New York. In addition, I know of at least one EMT who died a result of contracting the virus while on duty in NY. I suppose you think it is fair to tax his estate, too. Not me.
There is a 1960s protest song that applies:
It makes me wonder how he plans on taxing people who volunteer to work for free. Imputed income?
If you work in California or Nebraska just one day (say, giving a lecture), you are subject to taxation. I have long thought that Michigan should impose a similar tax on anyone from such a state who earns a dime here.
Such state taxes out to be illegal. They amount to an interference with interstate commerce. Only residents should be taxed. If you cannot file for unemployment compensation in a place, you should not be taxable there.
I hold similar views on the taxes imposed on people staying in hotels and motels while they are passing through. No representation, no taxation.
The property tax rate in Texas is 1.81%.
The property tax in NYC is 1.23%.
No, that 0.58% tax differential is not going to make up for New York’s income (4% to 8.82%) and other taxes.
Many professional athletes have to pay taxes in states they play in but do not live in-unless that has need recently changed.
They do and for them it is a nightmare.
Texas tolerates the illegal alien residents because its government is funded by sales tax. California has high sales tax but the state is very dependent on income tax, as well. Illegals probably pay little property tax aside from rent.
No. People get a deduction for state income taxes. There is no deduction for sales taxes. Tennessee has no income tax. They have a corresponding large sales tax, for which we get no federal income tax relief.
?? We don’t have an income tax.
When I lived and worked in Rochester, New York, my based-in-Connecticut boss complained that every time he came to visit the Rochester facility it cost him a non-trivial amount of money because of the New York income tax he had to pay. At the time, I think New York taxed anyone who was in the state 5 days or more.
I supervised employees in California, and would be careful not to be in California more than 9 days per calendar year, as that was the threshold at which California taxed non-residents.
Even though I moved to no state income tax Texas almost two years ago, I am still paying New York state income tax on some residual long term bonus income that is tied to work I did during the last couple of years I was employed in, and lived in, New York state. But at least I understand that when I did the work for which I am still receiving residual pay I lived in, and had my primary work location in, New York state.
As @paularahe I have wondered why the idea of taxing non-residents who do not have regular business facilities in a state is not an impermissible burden on interstate commerce. I understand the theory that the income was earned in the state, but taxing someone who has neither a residence nor a place of business in the state seems dubious. But, I’m assuming if there were a good argument against it, that argument would have already been made.
I could be wrong, but I thought there was a federal option for states with sales tax but no income tax. You could choose one or the other.
That’s how Wisconsin funded the Basketball Arena in Milwaukee. The annual state income tax revenue from the visiting (and home) players is more than the annual subsidy.
SALT is now limited to 10k per year
California is also dependent on capital gains tax and corporate tax, both unstable sources of tax ‘revenue’
Corporations are leaving CA
California not only tolerates illegal alien residents but also welcomes them (sanctuary state).
Medi-Cal and food stamps and AFDC are given to any woman who speaks Spanish and no English.
Walk into any ‘immigrant advocacy’ center and they will set you up with all the ‘documents’.
Many are located are near MacArthur Park (Alvarado and 7th street), where I purchased my first driver license saying I was age 21
I spent hundreds of hours, usually after midnight, operating on these people for their accidents, auto and personal.
And your compensation was little to no money?
I remember your story about ‘Manny’, who got injured near the railroad tracks. Since he had no money or insurance you offered the barter option. Apparently he was ‘too busy’.