Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

 Wherever you go, you will be closely followed by taxation

- by Alan Duvall 

Published in Dayton Daily News  July 22, 2007 

“No matter where you go I will find you.”  -Clannad 

Composed of fifty states and innumerable cities, the U.S. has conjured a nightmarish tax system wherein political jurisdictions compete with one another for the right to tax the limited income of its citizens.  

Unearned investment-type income is typically taxed by the state of a taxpayer’s residence.  Visible signs of residency may be determined by such factors as location of abode, driver’s license and vehicle registration.

 Business and wage income may be taxed to the state where earned as well as the state of residency (which grants a credit for taxes paid to the non-residency state).  Exceptions are often negotiated between neighboring states to eliminate the double reporting system. 

Businesses operating in multiple states and cities must allocate income according to complex formulas based upon the relative percentage of sales, payroll and assets allocated to competing locales.  In addition to the pain of filing numerous returns, the system is aggravated by the presence of multiple definitions and allocation formulas. 

Time has witnessed the flight of Snowbird taxpayers from Ohio to tax-friendly states such as Florida seeking shelter from state-imposed income and estate taxes.   

Feeling the pressure to recoup tax revenues migrating south, Ohio has adjusted its residency tests effective January 1, 2007.   

If an individual (1) has an abode outside Ohio, (2) spends no more than 182 “contact periods” in Ohio during the year, and (3) annually files a valid residency statement with the state before April 15 – he/she will be presumed not domiciled in Ohio. 

“Contact periods” is a term somewhat akin to days.  A contact period in Ohio is established any time a taxpayer spends two consecutive days in Ohio. 

Despite state’s attempt to quantify domicile guidelines with specificity, taxpayers can still challenge residency claims in court, as evidenced by the classic years-long states’ battle over the remains of the late Howard Hughes’ estate.  

“Everyone says they own you more than you do.”  -Cat Power 

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.  Previous articles archived at www.duvallcpa.com.