The South Carolina Dept of Revenue has changed the rules regarding a SC resident who
had income from another state and who itemized and deducted state tax withholding.
This applies to single returns, clients who file a new N. C. joint return and to SC1040NR
returns. They have ruled that the state addback for the N. C. state tax withholding (or
other state) is added to the worksheet or computation which is used to determine the
percentage of income earned in the other state compared to the total income. The result is
that for a taxpayer who had ONLY N. C. income (or other state) and NO S. C. income,
the percentage calculated will be less than 100%, perhaps 95%, etc. The NC D-400
will show the percentage on page 2 line 50 as 100%. SC stated that their computation in
all prior years was wrong and now they have it right. I believe that they are wrong now, but
they have spoken. This will cause taxpayers to have a balance due to SC of considerably
more. In an example I prepared the increase was $171.00. SC instructions for line 31
State Addback:" If you deducted state and local income taxes or general sales tax while itemizing
on your 2006 federal income tax return, you are required to add all or part of this amount to federal
income taxable income to arrive at your South Carolina taxable income." How can a DEDUCTION
be converted to INCOME? Also how does a N. C. withholding become a SC INCOME source?
This might be a good issue for filing a class action suite.
had income from another state and who itemized and deducted state tax withholding.
This applies to single returns, clients who file a new N. C. joint return and to SC1040NR
returns. They have ruled that the state addback for the N. C. state tax withholding (or
other state) is added to the worksheet or computation which is used to determine the
percentage of income earned in the other state compared to the total income. The result is
that for a taxpayer who had ONLY N. C. income (or other state) and NO S. C. income,
the percentage calculated will be less than 100%, perhaps 95%, etc. The NC D-400
will show the percentage on page 2 line 50 as 100%. SC stated that their computation in
all prior years was wrong and now they have it right. I believe that they are wrong now, but
they have spoken. This will cause taxpayers to have a balance due to SC of considerably
more. In an example I prepared the increase was $171.00. SC instructions for line 31
State Addback:" If you deducted state and local income taxes or general sales tax while itemizing
on your 2006 federal income tax return, you are required to add all or part of this amount to federal
income taxable income to arrive at your South Carolina taxable income." How can a DEDUCTION
be converted to INCOME? Also how does a N. C. withholding become a SC INCOME source?
This might be a good issue for filing a class action suite.