AZ & CA return help needed

[tilt53]

I'm beginning to feel dumb. I use ProSeries and here's the situation.

Client is AZ full time resident and CA NR. She received a W-2 from CA with hefty withholding from NQSO. When I did the AZ return, I tried to take the credit for taxes paid to another state (Form 309). Upon entering CA's abbreviation in the form it informed me "Arizona Residents must take the credit for taxes paid on the CA nonresident tax return."

Ok, fine. So we did, using Schedule S. Did the same thing for 2007. 2007 went through just fine. Then she got a letter from CA denying the credit and saying she had to take it on the AZ return. What gives? I've been fighting CA for over a year now. And of course, with the financial situation they certainly don't want to send her any money.

Any suggestions on how to deal with this?

[BHoffman]

http://www.azdor.gov/Forms/2007/309-R%20instructions.pdf

You might mail them a copy of the 309R destructions and highlight the pertinent info and use that to illustrate your response. Sorry you are having to deal with the CA revenuers. IMHO it is very difficult to resolve problems with them. They will sometimes simply refuse a rightful refund and leave you without any option. Squeaky wheel gets the grease. Perhaps someone at the AZ Dept. of Revenue could offer the state statute regarding the reciprocity with CA and you could cite that.

[tilt53]

I was beginning to think I was nuts.

I know we filed correctly and I emailed AZ Dept. of Revenue today and had a very nice reply in less than 30 minutes. TP is signing a POA and I'm going to go directly to the Taxpayer Advocate. This is ridiculous and very frustrating.

[BHoffman]

Sandy - will you share the results? I have clients with NR CA income. If this is going to be a problem, I'd sure like to know how it comes out for you.

[PIGLEE]

I used to do a lot of these, but now hardly any. I think you have to attach a copy of the AZ return to the CA return, that may help even if they don't ask for it. You will end up paying some tax on that money to CA because their tax is higher. Just keep at it, you are doing it right.

[tilt53]

This is the response I received from AZ DOR:

In the tax situation between Arizona and California, the non resident state gives the taxpayer credit for tax owed to both states on income reportable to both states. You would use schedule S with your California non resident tax return to reduce your California tax liability by the tax owed to Arizona on the income taxed by both states.
Sincerely Taxpayer Assistance

I'll keep you posted if I ever get anywhere with CA.

[Davc]

How many days was the TP in CA?

[tilt53]

She actually spent no time in CA. The W-2 is purely from NQSO. This is an amendment going back to 2006. I realized last year that I had erred. For 2007 she spent no time CA either and they allowed the credit.

Fortunately, the last of the NQSO will be on the 2008 return.