Calling all tax professionals

[Clairitek]

I have a state income tax related question.

DH and I both still drive cars that are owned and insured by our parents so we still have licenses from those states (I am still a full time student and my parents'' insurance company knows that I don''t live in the state with them but require that I have a license that matches my tags). We live (and own a home) in a different state from each of our licenses. Neither of us have paid income taxes to the states that issued our licenses in the last couple of years because we haven''t really LIVED in those states. We do pay taxes, of course, to the states that we live and work in now.

My question is, would the states that issued our licenses (and therefore consider us to be residents of those states) have the right to come after us for income tax even if we haven''t worked in or truly lived in those states for years?

DH thinks that they can''t but I am worried and would rather be cautious.

 

[MichelleCarmen]

Aren''t you suppose to put whether or not you lived in a specific state for a certain amount of time? If you lived in state Y for the last year, you would put that down so it would show that you lived there rather than state Z where your cars are licensed. Call H&R block and see what they say. Also, you can check the IRS site.

 

[Clairitek]

Date: 1/26/2010 1:42:29 PM
Author: MC
Aren''t you suppose to put whether or not you lived in a specific state for a certain amount of time? If you lived in state Y for the last year, you would put that down so it would show that you lived there rather than state Z where your cars are licensed. Call H&R block and see what they say. Also, you can check the IRS site.

I do mark down on the tax form for the state I live in that I have lived there for the whole year (well this past year we did, the previous year I lived and worked in the state I work in now). If the states that issued our licenses were to look at their records they would see that we technically "live" in those states because we have a permanent address there. I''m just worried that eventually they''ll catch on that we haven''t filed an income tax return there in a few years.

 

[katamari]

Not a tax professional, but I had a roommate in grad school from a state that required property taxes on the value a car each year. She had to pay it, regardless of living in another state, because it was insured and titled in her state. She was from PA.

 

[Clairitek]

Date: 1/26/2010 2:21:31 PM
Author: katamari
Not a tax professional, but I had a roommate in grad school from a state that required property taxes on the value a car each year. She had to pay it, regardless of living in another state, because it was insured and titled in her state. She was from PA.

Oh good grief!! Thats the state I live in/own a house in now. I wonder if when I get my PA license/register my car here if they will see that I''ve lived here for a while and charge me back taxes. Though, I don''t technically own my car now anyways. I guess I''ll see! Thanks for the heads up.

 

[lucyandroger]

As state laws vary, it will depend on the individual states. Try the state websites -- there are usually decent FAQs.

 

[Miss Sparkly]

I would not call HR block. DH is a tax accountant who worked for them as a part time gig while he was in college. Anybody can work there and the training is mainly how to use the software with a dabble in tax law. DH states that the state in which you have your DL could come after you for taxes, however, if you own a home, work, go to school and are registered as a voter in a different state then that is proof enough that you're not a resident of the DL state. I don't understand why your insurance company would state that. Usually what's important to them is who drives it, where it is kept at night, and how much it is driven....?

 

[IdLikeToBuyAVal]

I will try to help. I live in Missouri but I worked at a license office for several years and I''m now an accountant (albeit corporate so I can only help so much).

Your motor vehicle/driver''s license issues are separate from your income tax issues (unless your second state is California). First, most states require you to get an in state driver''s license after being a resident of the new state for 6 months. Check with your originating state and your new state to see about this requirement. Because you own a home in state 2 and if live there more than 6 months out of the year, most states will consider you a full resident of state #2 (you need to change your driver''s license).

Secondly, I don''t know if you''ve checked on this but most insurance companies will not cover children beyond a certain age especially those who are living outside the household. Some companies have a limit of age 21 or 24 depending on the insurance company and where you are. I checked on this with my insurance company while I was in college and got my own policy when I moved out for good at 21. With this in mind, you can also have issues with insurance companies covering drivers whose names are not titled on the vehicle. God forbid you have an accident and find out you''re beyond the age limit and they won''t cover the damage because you don''t own the car anyway (I''ve seen stranger things happen).

Since you don''t technically OWN your car (if your name isn''t on the title) any taxes would be your parents'' liability. Missouri has personal property taxes that are due on movable personal property (cars, boats, RV''s, ATV''s etc.) each year (Missouri is fairly odd in charging this I don''t think it''s a common practice).

Now, as for income taxes, your employer is going to remit state income taxes withheld from your checks to the state in which you work. You would file your income tax return to the state where your taxes were being withheld (it will be on your check stub). If you live near a border of one state and work across the line in the next state, those states will have a reciprocity agreement. You can go to the department of revenue website for both states to see what your income tax liability between the two states technically is. Since you ARE a resident of state #2 and I''m assuming you work there as well, your income tax liability should probably be with state #2.

All that said, I think you should get everything under the correct state. If you purchased a home there, you obviously intend to stay there for some time and you should get proper identification for that. Hope this helps.


PS: I second not going to H&R Block. Google CPA firms near you and go there. A lot of H&R Block people know taxes but can''t help with tax legality issues.

 

[Octavia]

C-tek, I'm not a tax pro either, but I do know that your particular state of residence requires you to change your DL within 60 days of moving to the state, so I think you're already way out of compliance with that. I'm pretty sure that if you ever get pulled over in this state, you can be ticketed for not changing your license as well as for whatever violation the cop pulls you over for. Since you own a house and pay your taxes in this state, you'd probably be SOL if that were to happen -- the law doesn't care what your parents' insurance company wants.

I'm guessing the insurance company wants you to have your DL in the state where your parents live and the car is registered because they want it to be your primary address -- but it seems that in your case, it's not anymore. FWIW, my parents' insurance company was the same way -- fine with me having the car when I was at college, but my primary residence was still with my parents at that time. As soon as I moved away and started working, the insurance company didn't consider me a household member anymore and I couldn't stay on the same policy. Are you sure that your parents' insurance company knows that your primary residence is no longer in that state? Insurance companies can sometimes be relieved of liability to pay if something happens and a condition of the policy (such as you having primary residence in state X, if that's the impression the company is under) has been violated.

As far as I know, your parents can gift the car to you and nobody has to pay taxes as long as 1) they've owned the car for a certain amount of time, I think the rule here is more than a year, and 2) it won't cause them to surpass the gift tax exemption. My parents did this with my car, which is how I know that it's possible, although my dad did have to come down to sign over the title in person.

Tax-wise, the state you live in and the state you work in will have policies for dealing with your income taxes (IIRC, your work state doesn't tax income and your home state does, but the state taxes should still be withheld along with the federal ones and will be automatically sent to the proper agency in conformity with the agreement between the states). If you don't earn any income in the state where your DL is, and you haven't lived there more than a certain amount during the year, you probably don't have tax liability there (but don't take my word for it, that's just the way it worked for me in the past).

Definitely see a tax pro to make sure that everything is okay, though, and be very careful about the car insurance situation.

 

[Miss Sparkly]

I should have also clarified that the DL issue really only comes into play (as far as taxes are concerned) if you are being investigated for non-filer status, residency requirements or large errors/inconsistencies on your tax returns.

 

[Clairitek]

Date: 1/27/2010 12:41:19 AM
Author: IdLikeToBuyAVal
I will try to help. I live in Missouri but I worked at a license office for several years and I''m now an accountant (albeit corporate so I can only help so much).

Your motor vehicle/driver''s license issues are separate from your income tax issues (unless your second state is California). First, most states require you to get an in state driver''s license after being a resident of the new state for 6 months. Check with your originating state and your new state to see about this requirement. Because you own a home in state 2 and if live there more than 6 months out of the year, most states will consider you a full resident of state #2 (you need to change your driver''s license).
The reason I haven''t gotten a DL in my current state (PA) is because of the insurance issue with my license matching my tags. So far, this hasn''t been an issue but I do realize that I am sort of skirting around the rules right now. I want to transfer the title now and get our own policy but DH wants to wait and see where we will end up living when I am out of school so we don''t have to deal with the switching around more than necessary. We will most likely be leaving the state where we live now.

Secondly, I don''t know if you''ve checked on this but most insurance companies will not cover children beyond a certain age especially those who are living outside the household. Some companies have a limit of age 21 or 24 depending on the insurance company and where you are. I checked on this with my insurance company while I was in college and got my own policy when I moved out for good at 21. With this in mind, you can also have issues with insurance companies covering drivers whose names are not titled on the vehicle. God forbid you have an accident and find out you''re beyond the age limit and they won''t cover the damage because you don''t own the car anyway (I''ve seen stranger things happen).
My parent''s insurance company knows that I am almost 28 and live out of state full time but still cover me. As soon as I am not a student anymore they will drop me from the policy.

Since you don''t technically OWN your car (if your name isn''t on the title) any taxes would be your parents'' liability. Missouri has personal property taxes that are due on movable personal property (cars, boats, RV''s, ATV''s etc.) each year (Missouri is fairly odd in charging this I don''t think it''s a common practice).

Now, as for income taxes, your employer is going to remit state income taxes withheld from your checks to the state in which you work. You would file your income tax return to the state where your taxes were being withheld (it will be on your check stub). If you live near a border of one state and work across the line in the next state, those states will have a reciprocity agreement. You can go to the department of revenue website for both states to see what your income tax liability between the two states technically is. Since you ARE a resident of state #2 and I''m assuming you work there as well, your income tax liability should probably be with state #2.
I pay income tax to the state I work in and the state I live in, but oddly enough.. no reciprocity! We end up getting hit with a little bit of a double whammy but I do file in both states.

All that said, I think you should get everything under the correct state. If you purchased a home there, you obviously intend to stay there for some time and you should get proper identification for that. Hope this helps.
Thanks for your input! I do feel better about the main issue here- that the state that issued my DL probably won''t come after me for income tax since I don''t keep my home there nor do I work there. I do want to work on recitifying the whole DL/where I live thing though. I realize its not totally correct the way things are now.


PS: I second not going to H&R Block. Google CPA firms near you and go there. A lot of H&R Block people know taxes but can''t help with tax legality issues.

 

[crown1]

i''d want to make sure that the company and not just the agent was ok with the situation. have they ever had to pay a claim? i fear they might make the argument that you were not upfront on the situation. the fact that you probably are not in compliance with the law regarding the driver''s license might be a problem? i think it is one of those things which may never be a problem but if you need to file a claim you may be without coverage if they decide to get tough? being married, employed and a property owner might make it look like you are not a dependent of your parents and they may try to get out of paying? just a thought, as i have no knowledge here.

 

[Clairitek]

Date: 1/27/2010 12:46:46 PM
Author: crown1
i''d want to make sure that the company and not just the agent was ok with the situation. have they ever had to pay a claim? i fear they might make the argument that you were not upfront on the situation. the fact that you probably are not in compliance with the law regarding the driver''s license might be a problem? i think it is one of those things which may never be a problem but if you need to file a claim you may be without coverage if they decide to get tough? being married, employed and a property owner might make it look like you are not a dependent of your parents and they may try to get out of paying? just a thought, as i have no knowledge here.

I am actually a full time grad student, not in a full time job.

I get what you mean though. DH has agreed to get my car transferred to my name so we can get our own insurance policy and I can get a PA license. He didn''t want to deal with the headache before but I am more of a nervous nelly and want things to be right.

Regarding the current insurance situation- we did actually make a claim a few years ago when I got rear ended down here (PA). The insurance company (Progressive) covered us through the claim and then dropped us ebcause they didn''t like the situation. My mother found another provider who was willing to cover me down here so long as I was still a student and my parents own the car and I have a license from the state where the car is insured. My parents are very very careful with this stuff and I''m sure that the company itself is OK with it, not just the agent who sold the policy.

Thanks again everyone for the input. Makes me feel better about being worried about this stuff and not like I''m making a mountain out of a mole hill regarding the insurance/license situation.