State Tax & IRS Compliance

183-day rule, domicile vs. statutory residency, NY convenience rule, domicile change.

HNW domicile change, audit defense, near and dear test.

Multi-state filing, withholding, convenience rule.

9 states, tradeoffs, planning considerations.

$40K cap, PTET elections, planning strategies.

PR resident tax savings under Act 60.

PTET federal framework (Notice 2020-75) and 36+ state regimes. OBBBA preserved PTET despite $40K SALT cap. State-by-state mechanics: NY irrevocable March 15 election (graduated 6.85-10.9%); California 9.3% with mandatory June 15 prepayment, extended through 2030; Connecticut converted mandatory→elective; Illinois made permanent Dec 2025. Resident credit vs income reduction models. Multi-state tiered entity complexity. §1361(b)(1)(D) single class of stock. QBI / §163(j) / §461(l) interactions.

NY nonresident allocation complete mechanics. Tax Law §631(a)(1) defines NY source income for nonresidents - all items entering federal AGI attributable to (i) ownership of NY-located real/tangible property or (ii) business/trade/profession/occupation carried on in NY. §632(c) regulatory apportionment authority. WAGE ALLOCATION FORMULA 20 NYCRR §132.18(a): NY source compensation = total wages × (NY working days / total working days). Working days exclude weekends, holidays, sick, vacation. PART-DAY RULE - any portion of day worked in NY = full NY day. BUSINESS INCOME §132.15 - three-factor BAP (property + payroll + sales) / 3 for sole proprietor and pass-through; entity-level apportionment flows through K-1 to nonresident owners. §631(b)(1)(A)(1) 2009 amendment treats sale of partnership/LLC/S-corp/closely-held C-corp interest as NY-source real property gain if >50% of entity assets are NY real property (2-year lookback prevents stuffing). TSB-M-95(3)I stock option allocation by grant-to-vest NY workday ratio; TSB-M-96(2)I deferred compensation by earning-period ratio. 4 U.S.C. §114 federal Source Tax Act preempts NY taxation of nonresident pension income. Forms IT-203, IT-203-B (wage allocation), IT-203-A (business allocation). NY Department aggressive on documentation; calendar logs, EZ-Pass records, cell tower data, credit card geography all relevant evidence on audit. Coordinates with convenience-of-employer rule for day classification.

Convenience of employer rule complete mechanics. 20 NYCRR §132.18(a) treats days worked outside NY by employee of NY employer as NY working days UNLESS the out-of-state work was performed OUT OF NECESSITY for the employer (not employee convenience). Practical effect: nonresident employee of NY employer working from out-of-state home for personal convenience taxed by NY on those home-office days. TSB-M-06(5)I bona fide employer office test - home office qualifies as employer's office (making days non-NY) only if it meets 1 of 3 PRIMARY factors plus 4 of 10 SECONDARY factors, OR all 3 primary factors. Extremely high bar; rarely satisfied by typical remote knowledge workers. Zelinsky v. NYS Tax Trib 1 NY3d 85 (2003) upheld constitutionality (cert. denied 541 US 1009 (2004)). Matter of Zelinsky II (NY Tax Trib. May 9, 2025) rejected renewed challenge including COVID-era arguments despite Governor's executive order prohibiting in-office work. Other convenience-rule states: Pennsylvania (61 Pa. Code §109.8); Nebraska (Neb. Rev. Stat. §77-2733; Title 316 NAC §22-003.01C); Delaware (30 Del. C. §1124(b)(2)); Arkansas (Ark. Code §26-51-202; Act 1019 of 2023 mitigation). CT enacted 2018 reciprocity statute allowing credit for NY convenience-rule tax (Special Notice 2018(5)). NJ allows credit under N.J.S.A. 54A:4-1. Massachusetts COVID rule expired with state of emergency; cert. denied in New Hampshire v. Massachusetts (2021).

NY statutory residency complete mechanics. Tax Law §605(b) two-pronged residency test - taxpayer is NY resident if EITHER (a) DOMICILED in NY (subjective + objective permanent home test) OR (b) STATUTORY RESIDENT - maintains PERMANENT PLACE OF ABODE (PPA) in NY for substantially all of the year AND physically present 184+ NY days. 20 NYCRR §105.20(d)(2) defines PPA - permanent dwelling suitable for year-round residence with sleeping/cooking/bathroom; 20 NYCRR §105.20(e)(1) "substantially all" means more than 10 months / 11 months per Audit Division. Gaied v. NYS Tax Appeals Tribunal 22 NY3d 592 (2014) - NY Court of Appeals added critical third prong: taxpayer must have RESIDENTIAL INTEREST in property; mere ownership without subjective use as own residence insufficient. Obus v. NYS Tax Appeals Tribunal 206 AD3d 1511 (3d Dept 2022) extended Gaied to vacation homes - 2-3 weeks/year use NOT a PPA. Day-counting rules: any part of day = full NY day (5-minute layover counts); exceptions for medical inpatient and through-transit days. Audit Division 5 PRIMARY DOMICILE FACTORS: home, active business, time, near-and-dear items, family connections. Change of domicile FROM NY requires CLEAR AND CONVINCING evidence. §605(b)(1)(A)(ii) 548-day foreign presence exception (450+ days outside US in 548-day period + NY presence under 90 days + spouse/minor children compliance). TSB-M-12(5)I separate 14-day employer withholding de minimis rule.

California source rules complete mechanics. R&TC §17951 - nonresidents taxed only on "gross income from sources within this state." §17041(b) computation method - tax computed as if resident, multiplied by CA-source / total-income ratio. CCR §17951-5 employee compensation sourced to where personal services PERFORMED (pure physical-presence; allocation by CA workday ratio); NO CONVENIENCE-OF-EMPLOYER RULE (critical distinction from NY) - days worked from out-of-state home for CA employer are NOT CA source days. CCR §17951-4 sole proprietor and business income with MARKET-BASED SOURCING (Proposition 39, 2012) - services sourced to where customer/market receives benefit. CCR §17951-8 (adopted 2024) nonemployee director compensation market-based sourcing (per FTB Chief Counsel Ruling 2019-03). R&TC §17952 intangibles - generally NOT CA source for nonresident unless intangible has acquired "business situs" in CA; nonresident's stock sales, dividends, interest, royalties not CA source absent business connection. CA-located real property always CA source. R&TC §18662 7% nonresident withholding on CA-source payments over $1,500/year (Form 587, 590, 592). §18662(e) 3.33% real estate withholding (Form 593). R&TC §17952.5 retirement income excluded from CA source for nonresident (conforms to 4 U.S.C. §114). AB 150 PTE elective tax. Form 540NR (Nonresident or Part-Year Resident Return).

Resident state credit complete mechanics. Comptroller of the Treasury of Maryland v. Wynne 575 U.S. 542 (2015) - US Supreme Court held that state income tax violates Dormant Commerce Clause if it does not provide FULL CREDIT for taxes paid to other states by residents; internal consistency test. CORE MECHANIC - resident state taxes worldwide income at resident rates; allows credit limited to LESSER OF: (a) actual tax paid to other state on doubly-taxed income, OR (b) resident-state tax that would apply to same income at resident rates. Credit generally NONREFUNDABLE; excess "wasted" when other-state tax higher. Residents of no-income-tax states (FL/TX/NV/WY/SD/WA/AK/TN/NH) get no credit and pay full nonresident tax. State-by-state: NY Tax Law §620 (Form IT-112-R); CA R&TC §18001 (Schedule S); NJ N.J.S.A. §54A:4-1 (Schedule NJ-COJ); CT Conn. Gen. Stat. §12-704 with 2018 amendments specifically addressing NY convenience-rule tax (Special Notice 2018(5)); PA Tax Reform Code §301 (Schedule G-L); MA M.G.L. c. 62 §6(a) (Schedule OJC); IL 35 ILCS 5/901 (Schedule CR); OH §5747.05(B). RECIPROCAL AGREEMENTS - state pairs eliminate nonresident-state taxation entirely: Pennsylvania-New Jersey (Form REV-419/NJ-165); PA-OH/MD/IN/VA/WV; DC-VA-MD; Wisconsin-IL/IN/KY/MI; Michigan-IN/OH/WI/KY/MN/IL; Kentucky multi-state; MN-ND/MI/WI; IA-IL; MT-ND. PTE ELECTIVE TAX coordination - states' SALT cap workarounds (NY §860-866, NJ BAIT, CA AB 150) - entity pays state tax at entity level; resident shareholders receive credit; complex coordination per state.

State apportionment for service businesses complete mechanics. UDITPA (Uniform Division of Income for Tax Purposes Act, 1957) drafted by NCCUSL; adopted by Multistate Tax Compact (1966) as Article IV. UDITPA bifurcates BUSINESS INCOME (apportioned by formula) from NONBUSINESS INCOME (allocated to specific state). Traditional 3-FACTOR FORMULA: (Property + Payroll + Sales) / 3. MODERN TREND - majority of states moved to SINGLE-SALES-FACTOR (~30 states) or double-weighted sales formulas to favor in-state manufacturers/employers. SERVICE REVENUE SOURCING - the central dispute. (1) COST-OF-PERFORMANCE (COP) - service sourced to state where greater proportion of income-producing activity occurred (typically payroll/property location); all-or-nothing approach in original UDITPA. (2) MARKET-BASED SOURCING - service sourced to where customer/market receives benefit. MTC AMENDED UDITPA IN 2014 to shift services and intangibles from COP to market-based. As of 2026, approximately 35+ states use market-based sourcing for services; 7 income-tax states retain COP - Florida (F.S. §220.15), Idaho, Kansas, North Dakota, Virginia (Va. Code §58.1-416), West Virginia, with New Hampshire transitioning. Arkansas Act 719 (2025) adopted market-based effective for tax years beginning on or after January 1, 2026. Synthes USA HQ v. Commonwealth 289 A.3d 846 (Pa. 2023) addressed sourcing complexity. THROWBACK RULE in ~20-25 states - sales to no-nexus states "thrown back" to origin state to prevent nowhere income; P.L. 86-272 protection for solicitation of tangible personal property sales. Wayfair 138 S. Ct. 2080 (2018) economic nexus expansion. State-specific formulas for financial institutions, transportation, broadcasting. Combined/unitary reporting in ~25 states.

Connecticut income tax guide: graduated rates from 2% to 6.99% on income above $500,000 MFJ, Connecticut has its own estate tax wi

Georgia income tax guide: Georgia is transitioning from graduated rates to a flat income tax, currently at 5.49% for 2026 moving t

Massachusetts income tax guide: 5% flat income tax rate on most income, 9% surtax on income above $1 million (the Millionaire Tax)

Minnesota income tax guide: Minnesota has one of the highest top income tax rates in the country at 10.85% on income above $246,00

Ohio income tax guide: Ohio graduated income tax rates up to 3.5% on income above $115,300, the Ohio Business Income Deduction all

Pennsylvania income tax guide: 3.07% flat individual income tax rate, pension and retirement income fully exempt from Pennsylvania

Virginia income tax guide: Virginia graduated income tax rates up to 5.75% on income over $17,000, age deductions for seniors, par

Texas franchise tax guide: margin tax on taxable entities, four methods for computing taxable margin (total revenue minus COGS, co

C-Corp Form 1120 extension rules for all 50 states, DC, and major local jurisdictions. Automatic vs. accepts federal vs. separate

Form 4868 individual extension rules for all 50 states, DC, and local jurisdictions. Automatic, accepts federal, separate form req

NEC/MISC $2,000 and 1099-K $20,000/200 under OBBBA, plus the nine states with lower 1099-K thresholds.

DIF scoring, audit types, SOL, 90-day letter, Appeals, OIC.

Payment methods, installment agreements, EFTPS.

Failure to file, failure to pay, FTA abatement.

Form 4868, corporate extension Form 7004.

All federal deadlines for individuals, businesses, trusts.

IRS Online Account, transcripts, tax records.

30-day letter, CDP hearing §6330, CAP, equivalent hearing. Forms 12153, 12203, 9423. Post-Zuch update.

FTA (automatic for TY2025+), reasonable cause, RP 84-35 S-corp/partnership relief, Form 843 mechanics.

§6654 safe harbors (90% current / 100% prior / 110% AGI >$150K). Schedule AI annualization. Q1 2026 rate 7%, Q2 2026 6%.

§6511 refund SOL (3yr/2yr). 7yr bad debt, 10yr FTC. E-file current + 2 prior tax years. December 2025 revision continuous use.

§6662(d)(2)(B) accuracy penalty defense. Reasonable basis vs substantial authority. §6694 preparer exposure. Rev. Proc. 2024-50.

100% personal liability for responsible person who willfully fails to pay over withheld trust fund taxes. Form 4180 interview, Letter 1153(DO), Form 2751. NO statutory reasonable cause exception. Survives bankruptcy. Joint and several.

4.95% flat rate; retirement income fully exempt; $4M estate tax.

10.75% top rate; inheritance tax; ANCHOR property relief.

13.3% top rate; FTB audit triggers; CA non-conformity.

4% capital gains; bona fide residency 183-day test.

4% rate, $95K exemption, investment income excluded, 23% NYC resident credit.

Wayfair nexus, taxability by state, B2B exemption certificates.

April 22 2026 rescheduling - state tax treatment independent of §280E change.