Maximizing the Other State Income Tax Credit: Defining Net Income Tax, Qualifying Local Taxes, Recent Legislation

The other state credit is a tax credit, as opposed to a deduction. Although this is a frequently taken credit, it is often not given due consideration. States offer the credit to eliminate double taxation of residents whose income is taxed in other states. Key to determining the credit is the definition of a net income tax. Most states specifically identify which taxes qualify and which do not. California, for example, states that the Texas franchise tax is not a net income tax because it taxes gross, as opposed to net, income.

Certain jurisdictional taxes can qualify as a net income tax and should not be overlooked. Whether or not jurisdictional taxes qualify must be considered on a state-by-state basis. New York City's Unincorporated Business Tax (UBT) can qualify as a net income tax. An appeal in the Mather case is currently under consideration in California. Mather was denied refund credits for other state taxes, including New York City's UBT and the metropolitan commuter transportation mobility tax. Mather argues that the taxes paid are indeed net income taxes and credit worthy. SALT practitioners must be aware of the latest developments affecting the other state credit and understand how to maximize this credit for individual income taxpayers.

Listen as our panel of state and local tax experts examines other state credit eligibility requirements for multi-jurisdictional in various states.

1. What is a net income tax?
   1. Defined
   2. What is not
   3. City, local, and jurisdictional taxes
2. Specific state requirements
   1. California
   2. New York
   3. Other states
3. Relevant cases

The panel will cover these and other critical issues:

• How net income tax is defined in specific states
• Which jurisdicitonal taxes qualify for the other state credit in most states
• The status of the Mather case in California
• Maximizing the other state credit for multistate taxpayers

Learning Objectives

After completing this course, you will be able to:

• Identify states that allow non-state taxes in the calculation of the other state credit
• Determine how specific states define net income tax
• Decide how the other state credit is calculated in most states
• Ascertain specific states that consider New York's UBT a net income tax

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of SALT taxation, nexus and apportionment as it applies to multi-state businesses.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.