NCPA - National Center for Policy Analysis

Beware The Pitfalls Of State Tax Audits

February 28, 2000

Those who have been through audits by state tax authorities say the process can be even more intrusive than a visit by the U.S. Internal Revenue Service. The issue is generally whether the person is a resident. And many people don't realize that a citizen can legally be classified as a resident of more than one state.

  • A common test for residency is that a person have a permanent place of abode and spend more than 183 days of the year there.
  • But tax experts caution that a resident of Connecticut or New Jersey, for example, who has a job in New York and an apartment for occasional use might well be classified as a New York resident -- with even a trip to La Guardia Airport to catch a plane being counted as a New York day.
  • Many victims of state tax audits -- including some who have homes in more than one state or who have moved from one state to another -- have found themselves required to dredge through reams of personal and business diaries, credit-card receipts, limousine driver records and telephone invoices to establish one-state residence.
  • Until 1996, some states taxed pensions they contended were earned in that state even if the recipients had moved to another state -- but a federal law passed that year ended the practice.

Tax professionals say many honest people have become automatic targets of audits, mainly because they earn high incomes.

Source: Vivian Marino, "An Arduous Audit, and Not by the I.R.S.," New York Times, February 27, 2000.


Browse more articles on Tax and Spending Issues