Michael E. Newton, author of book and blog “The Path to Tyranny,” (what an excellent name) has reported on a disturbing court ruling in New York that could open the door to taxation of people’s income who don’t live or work in the state.
I want to focus on this line:
Under the ruling, if an owner doesn’t spend a single a day in a home it could still count toward a permanent residence.
If every state applied this ruling and federal court does not overturn it, a person could in theory own housing property in every single state and thus owe income tax in every single state and the District of Columbia. By my rough calculation using the top marginal federal income tax rate of 35% and the sum of all the top marginal state income tax rates, a person could theoretically be taxed at a rate of 288%. (Yes, I recognize it is absurd for somebody to have property in all 50 states and DC, but the whole notion of paying income taxes in every state you own property is equally absurd.)
Yet, this is the logical extension of the mentality behind the so-called “Jock Tax” where players are taxed based on the number of games played within a state. Even if the player doesn’t play, i.e., work, they still have to pay the Jock Tax. So if simple presence is enough to trigger tax nexus (who taxes what)–any business trip could trigger nexus even if you’re just a prop. In fact, New Jersey has already extended the Jock Tax to out-of-state lawyers. Taken a few steps further, they are now saying that a house is like having presence in the state full-time.
Also I wonder what New York is going to do about all the tax treaties it has signed with other states governing tax nexus? What will happen is what happened with the Jock Tax . . . California first imposed it and then Illinois imposed theirs in retaliation and then other states jumped in the fray. I think most states, and some cities, with a professional team in the big four (NFL, NBA, NHL and MLB) now have a Jock Tax. Retaliation is what could make Michael’s doomsday scenario a reality.
The Feds should have put a stop to the Jock tax along time ago . . . now one bad tax idea is snow-balling into another bad tax idea.