Paying state taxes on gambling winnings in another state

[Mike9241]

NO they aren't.   taxation of the same income in multiple states is quite common.

just a few examples assuming both states have an income tax

rental income - property located in state X taxpayer domiciled in state Y. taxed in both states

business income - earned in state  X taxpayer domiciled in state Y. taxed in both states.

wages earned in one state taxpayer domiciled in another- unless there is a reciprocal agreement between the states, taxpayer pays taxes in both states.

in these situations, the state of domicile usually allows a credit for taxes paid on the same income in the non-resident state.

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[tagteam]

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@grasshopper612 wrote:

.....aren’t State department of revenues considered the SAME taxing authority even if they are different states? 

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I agree with @Mike9241 

In fact, even a municipality within the same state is generally not considered the same taxing authority. A prime example would be the State of New York and New York City.

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[grasshopper612]

@tagteam 

As far as the difference in taxing authorities, I understand that New York State and New York City are different taxing authorities as one is a city and one a state. State, city, counties, townships… all can tax income, all different municipalities. I am referring to strictly State Department of Revenue.

[grasshopper612]

@Mike9241 That’s my point. The credit.

In reference to the Supreme Court ruling of  Comptroller of Maryland v. Wynn in 2015. I realize two states can charge you tax but I thought that ruling made it so they MUST offer a credit for tax paid to another state? (something about state’s tax on personal income relating to the dormant commerce clause).

[Mike9241]

so are you saying your resident state does not allow a credit against its taxes for taxes paid to another state for income earned there? 

 With respect to nondiscrimination, the court held that the tax discriminated against interstate commerce because it denied residents a credit on income taxes paid to other States and so taxed income earned interstate at a rate higher than income earned intrastate. The court thus concluded that Maryland’s tax scheme was unconstitutional insofar as it denied the Wynnes a credit against the “county” tax for income taxes they paid to other States.

Maryland personal income has two parts a state income tax and a "county" income tax  SCOTUS decided that both taxes are state income taxes. For income earned in other states, Maryland allowed residents a credit against the state tax portion but not the county tax portion.  What SCOTUS ruled is that since the county tax was a state income tax the credit also had to be allowed against the county tax portion.  

I would point out that if the resident state doesn't tax a certain form of income it does not have to allow a credit for taxes paid to a nonresident state on the income it doesn't tax. Also permissible is to allow a credit no higher than the taxes that are imposed by the resident state on the nonresident state income.  

so non-resident state taxes the income without credit and your resident state allows a credit. for the credit to be computed correctly in Turbotax you have to do the nonresident state first.

[grasshopper612]

That’s exactly what I am saying. Granted I am talking about gambling income, however that income is treated as income earned. Illinois does not allow ANY deductions for tax paid to Another state for gambling. Specifically, no deduction allowed for taxes paid to another state for gambling. For example, for a $2000 W-2G Indiana takes out 3.23% then Illinois turns around and charges 4.95% and allows ZERO deduction for tax paid to Indiana. Therefore, on the same $2,000 income, you are charged BOTH state tax rates (8.18%). So, in essence, you are taxed TWICE for the same income with no allowable deduction.

[Mike9241]

https://www2.illinois.gov/rev/forms/incometax/Documents/currentyear/individual/IL-1040-Schedule-CR.p...

you're wrong. it's done on the above schedule where non-illinois gambling winnings are included in both line  15 colums A & B

Do not include any amount in Column B except net operating loss (NOL) carryforwards,
other states’ gambling and lottery winnings, and recoveries of items
deducted in prior years.

line 43 column B is divided by colum A both include non-illinois gambkling winnings

skip lines 44 through 50 assuming your a full-year illinois resident

line 51 taxes paid out of state

line 52 tax due IL-1040 line 12

line 53 enter decimal from line 43

line 54 line 52 times line 53

line 55 compare lines 51 and 54 and enter the lesser amount. this  is your tax credit

Hope I made you happy by showing that you'll get credit in Illinois for taxes paid on out of state on gambling winnings. Say Thank You.

[Hal_Al]

@Mike9241  Thanks for doing that research. This issue really bugging me. Is that just for 2020 or does it apply the previous years too?

Poster's original complaint was about  earlier years.  If not, then the new question is: will IL allow amended returns for past year refunds. @grasshopper612  you may have to direct that question to  the Illinois Department of Revenue. 

[grasshopper612]

Thanks for that, however, my original question was in regards to previous years. Actually, the law in general. It is NOW an allowable deduction (credit) in Illinois, however, it was NOT in previous years. “You may not claim a credit for tax paid to another state on gambling winnings earned in the other state while you were a resident of Illinois” taken directly from a letter from the IL Dept of Revenue for tax year 2018 and 2017. They changed it beginning in 2019.

my question was, how did they get away with not allowing it previously because of the rules about double taxation re: comptroller of Maryland v Wynne. 

[grasshopper612]

@Hal_Al  I can answer that question. No, IL will not allow you to amend returns to claim the credit, as I attempted to do so and the claim was rejected.

@Mike9241 However, I still do not have a definitive answer to my question. I wasn’t asking IF the credit was allowed—I already know it was not. My question was, isn’t that double taxation? Paying two states (equal taxing authority) FULL income tax on the SAME income, without a credit for tax paid to the other state.

[grasshopper612]

@Mike9241 @I do appreciate the time you took to address my issue and apologize if I seem ungrateful. I’m just frustrated and have had difficulty getting any information or response regarding this specific issue. Including from the IL dept of revenue. You are actually the first one to address it for me, so thank you for that. Short of consulting a tax attorney to address the question, I was just hoping to get a reasonable explanation for what, seems very clearly to me, double-taxation. 

[Hal_Al]

@grasshopper612 I think the answer is in the MD  court case.  They (IL DOR) got away with double taxation until the courts told them they couldn't.  Typically, court decisions are not retroactive.  I'm not a lawyer.

[tagteam]

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@grasshopper612 wrote:

my question was, how did they get away with not allowing it previously because of the rules about double taxation re: comptroller of Maryland v Wynne. 

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The Wynne case (decision) is somewhat complicated, particularly in one respect; offering a credit is only one method in which a state can comply with the decision.

Regardless, it is not unusual for states (as well as other governmental units) to either delay compliance or even fail to comply until forced to do so by subsequent litigation. For example, and without going into detail, one aspect of the Illinois trust residency scheme was held to be unconstitutional by an Illinois court of appeal well over five years ago yet the statute has never been changed and, apparently, is still enforced (at least the instructions for the Illinois return still adhere to the definition that was held to be unconstitutional in large part).

Irrespective of the nature of the decision, retroactive application can be limited by a number of factors, including a statute of limitations. In any event, good luck getting any reasonable response and/or action from the IL DOR. 

[Mike9241]

see a tax pro or lawyer.  there is nothing in Illinois tax law except the statute of limitations that would allow a denial of the credit on an amended return. of course, you have to submit all the required documents which would include IL-1040-x, Il-1040 as amended, form CR and a copy of the out-of-state income tax return.

Illinois enacted its income tax effective 8/1/69. as best as I can remember even back then credit was allowed for out-of-state taxes on double taxed income. 

[grasshopper612]

Thank you so much @tagteam  I appreciate that. Good to know my line of thinking isn’t crazy. Maybe that’s why they changed it in 2019. Thanks again!!