Question Regarding Married Filing Separatly Requirement for Nonresidents

[WD Kebschull]

Virginia does not allow a nonresident with Virginia source income to file "Married Filing Jointly" if his/her nonresident spouse has income but no Virginia source Income. Compared to MFJ, for MFS the standard deduction is reduce from $6000 to $3000 and the number of exemptions is reduced from 2 to 1. Of course, to file MFS in Virginia the spouse with Virginia source income must prepare a MFS Federal Income Tax Return. Depending on how the return is prepared (with or withour a computer) and the software that is used, this can vary between being a minor to a major pain in the arse.

Why isn't Virginia's MFS requirement described above in violation of the Privileges and Immunities clause of the United States Constitution (Article IV Clause 2) ?

Are there any other states that have the same or a similiar MFS requirement for nonresidents?

Prior to 2006 North Carolina and South Carolina had similar requirements. In 2006 the North Carolina legislature passed a law allowing nonresidents to file MFJ even if only one spouse had North Carolina source income. South Carolina quickly followd suite.


Cheers,

WDK

Note:
Virginia also has a "Married, Spouse Has No Income From Any Source" filing status which limits the standard deduction to $3000 but allows 2 exemptions.

[Snaggletooth]

Of course, to file MFS in Virginia the spouse with Virginia source income must prepare a MFS Federal Income Tax Return.

Virginia also has a "Married, Spouse Has No Income From Any Source" filing status which limits the standard deduction to $3000 but allows 2 exemptions.

WDK - You're new, so welcome to the board. I hope you find it mutually beneficial as many of us have.

I don't think a Federal Court would bother to hear the case. Statutes of taxing authorities are rarely tampered with unless interstate commerce is affected. Also, if I follow your illustration, a plaintiff would be hard to find for the amount of money involved.

If I were representing the Commonwealth of Virginia in such a lawsuit, and had any worries about losing, it would be so easy to change the structure of filing status and then make up for the loss of revenue by getting the state legislature to make rate changes. If they resisted, I would simply quantify how much less money they would have to spend, and that should end all discussion.

Non-residents can't vote anyway, so ganging up on them is akin to running unopposed. This can take the form of extra taxes, or the form of the notorious Virginia Highway Patrol, where the state can have the latest state-of-the-art electronic devices and motorists cannot have a radar detector. I spent a while in Bristol, and the VA side was called "Little Russia."

By the way, I have a non-resident taxpayer with $3MM in Federal income, and the option to elect "Married but spouse has no income from any source" was $41 more costly than simply "Married filing separately." His VA income was $62,000. Can't figure that one out.

[WD Kebschull]

WDK -

I don't think a Federal Court would bother to hear the case. Statutes of taxing authorities are rarely tampered with unless interstate commerce is affected. Also, if I follow your illustration, a plaintiff would be hard to find for the amount of money involved.

If I were representing the Commonwealth of Virginia in such a lawsuit, and had any worries about losing, it would be so easy to change the structure of filing status and then make up for the loss of revenue by getting the state legislature to make rate changes. If they resisted, I would simply quantify how much less money they would have to spend, and that should end all discussion.

Non-residents can't vote anyway, so ganging up on them is akin to running unopposed. ...

By the way, I have a non-resident taxpayer with $3MM in Federal income, and the option to elect "Married but spouse has no income from any source" was $41 more costly than simply "Married filing separately." His VA income was $62,000. Can't figure that one out.

SNAG:

You are obviously aware that Davis v. Kentucky is now before the Supreme Court. That is a Commerce Clause issue involving taxation of municipal bond interest... exemption of interest on in state bonds verses taxation of interest on out of state bonds by Kentucky.

North Carolina quietly did away with their MFS requirement about two years after I raised the issue in passing with a very prominent North Carolina legislator. As I recall, a "back of on envelope" calculation would have produce a $1300 difference for a Tennessee resident whose only income was $200,000 of North Carolina source income. North Carolina rates are structured in much the same fashion as the Federal tax rates. So the impact on taxes paid under MFS v. MFJ would be substantially higher than for Virginia.

But I have seen that Virginia's Goverrnor, Tim Kaine has been mentioned as a potential Vice-Presidential Candidate. Unconstitutional taxation of nonresidents by Virginia wouldn't be a good item on his resume.


Cheers,

WDK

[Bees Knees]

Just glancing through TTB All States book, the following states have a similar law:

Alabama
Connecticut
Georgia
Illinois
Maine
Maryland
Nebraska
New Jersey
New York
North Carolina
Oklahoma
Oregon
Pennsylvania
Rhode Island
Utah
Vermont
Virginia

Most of these states have the option to either file joint, reporting the non-resident spouses income as if it was earned in that state, or file separate returns reporting income in the state of residency.

[Snaggletooth]

SNAG:
You are obviously aware that Davis v. Kentucky is now before the Supreme Court.WDK

Oh Brother! Kebschull you give me far too much credit. If only you knew how dumb I really are...

You do, however, bring up another point with this lawsuit. Tennessee has a "Hall" income tax (affectionately named for the legislator who introduced it in 1953.) Municpal bond interest is taxable to Tennesseans unless the municipality is in Tennessee. In fact, a couple of my wealthier clients have got a brokerage plan which claims to be "totally tax free", meaning strictly TN cities and counties, and no private-underwriting AMT income to sneak in as a Trojan horse for investors seeking to avoid federal tax.

My statement that "it would be hard to find a plaintiff" doesn't apply here, because the plaintiff would most likely be a city government instead of an individual investor. With plenty of clout to get the attention of a court. I'll bet Davis is backed up by a local government somewhere.

If Kentucky loses this lawsuit, then Tennessee's law will have to fold too. Breaks my heart. Wonder how many states tax municipal instruments for municipalities out-of-state?

[WD Kebschull]

If Kentucky loses this lawsuit, then Tennessee's law will have to fold too. Breaks my heart. Wonder how many states tax municipal instruments for municipalities out-of-state?

SNAG:

As I recall, just about all of them that have a state income tax plus Tennessee and maybe others. I think that there are a very few states that tax the interest on both in state and out of state municipal bonds. That scheme would be unaffected by any decision in Davis v. Kentucky.

Cheers,

WDK

[Snaggletooth]

Location

WDK, do you think you would be sacrificing too much anonymity to specify your general location? I'll bet it is in Northern NC, maybe on a beeline from Sparta to Elizabeth City, possibly somewhere on the 158 corridor...

Enjoy your posts. Come back often.

[WD Kebschull]

WDK, do you think you would be sacrificing too much anonymity to specify your general location? I'll bet it is in Northern NC, maybe on a beeline from Sparta to Elizabeth City, possibly somewhere on the 158 corridor...

Enjoy your posts. Come back often.

SNAG:

You found my son in North Carolina. With a great deal of PERSISTENCE (hint, hint) you can find him in a picture in the May issue of "Marlin" magazine. I live in northeast Maryland, but not Northeast, Maryland. With a last name like mine, anonymity is a hard thing to comeby! I am orginally from "Granger", Tennessee ,at least that's what John Grisham called it in "The Rainmaker". Got my "advanced formal education" in the hills of East Tennessee where a primary focus was on liquid-vapor equilibria. In the immortal words of Barack Obama, "Do you smell what I am cooking?"

Cheers,

WDK

[WD Kebschull]

[QUOTE=Snaggletooth;59923]My statement that "it would be hard to find a plaintiff" doesn't apply here, because the plaintiff would most likely be a city government instead of an individual investor. With plenty of clout to get the attention of a court. I'll bet Davis is backed up by a local government somewhere.

I don't think so. Here is why. If Kentucky loses it would have to either tax the interest on both in-state and out-of-state bonds or tax neither.

Going from exempting the interest on in-state bonds to taxing them would increase the interest that the counties/municipalities would have to pay on bonds issued in the future and it would funnel more money into the state treasury.

Of course, exempting the interest from both in-state and out-of-state bonds would cause the state to lose tax revenue. It may help the counties/municipalities in some states by broadening the market for their bonds.

The decision on this should be out by this Fall.

Cheers,

WDK

[WD Kebschull]

Just glancing through TTB All States book, the following states have a similar law:

Alabama
Connecticut
Georgia
Illinois
Maine
Maryland
Nebraska
New Jersey
New York
North Carolina
Oklahoma
Oregon
Pennsylvania
Rhode Island
Utah
Vermont
Virginia

Most of these states have the option to either file joint, reporting the non-resident spouses income as if it was earned in that state, or file separate returns reporting income in the state of residency.

B. K., thanks for the response but it didn't answer my question. The question is:

Other than Virginia, are there any other states that REQUIRE a nonresident taxpayer who filed a MFJ federal income tax return to file a MFS return if his/her spouse had income but did not have income from that state?

I did not check the requirements of all of the states that you listed but North Carolina and Maryland do not have that MFS requirement if a MFJ federal return was filed.

Cheers,

WDK