Dealing With State Tax-Related Concerns

Individual states can sometimes take harsh measures to collect on taxes such as withholding driving privileges from those that owe state taxes and unpaid unemployment insurance. Additionally, efforts to enforce collection can cause problems in other areas of business.

Kundra & Associates is a premier Maryland law firm. Our lawyers focus exclusively on tax law.

Employee Misclassification

State taxing authorities are particularly concerned with how businesses characterize their workers. Be careful, complete and consistent with how you classify and document your workers.

When a worker is an "employee," a portion of their pay is withheld and remitted as federal tax deposits to account for Social Security, Medicare and voluntary withholding. Depending upon your state, state withholdings may also be required and have requirements regarding when and how to remit.

Independent contractors are responsible for self-employment taxes. There are no such withholding obligations through the employer. A disgruntled worker may be the first to file with the IRS and advise that you have not properly characterized them. If classifying a worker as an independent contractor is not reasonable under both the IRS and your state's definition, you could be charged heavy interest and penalties in addition to having taxes assessed for the failure to withhold and account for the proper payment of taxes.

Domicile Tax Issues

Many states hold that if you were a resident of their state at one point in time, unless you affirmatively establish residency in another state or country, you are still subject to taxes. Often the state will tell you about a liability many years later with consequences extending beyond the specific one for which they initially contacted you.

Contact Kundra & Associates for counsel and attorney representation on state taxation matters by calling 301-637-8130.