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    Which state tax agencies monitor professional licenses?

    As many healthcare travelers are aware, a mobile professional is required to file a state tax return in any state they earn income, as well as their home of record. If a traveler lives in South Carolina and works in California, New Mexico, and Georgia, for example, they are obligated to file returns in all four states — absent any reciprocity rules that might apply.

    However, in efforts to generate additional tax revenue, an increasing number of state revenue agencies are tapping into databases containing professional practice licenses.

    This year, my firm has encountered several notices from state tax agencies requesting returns from individuals holding a professional license in a particular state where they earned no income in that state during that tax period. When they arrive, these letters can be frightening to the reader because state tax is often assessed on the total income reported to the IRS on a federal return.

    Healthcare travelers and locum tenens physicians routinely receive notices from state entities requesting a tax return for years that they did not work there. Even more frustrating for the recipient is the fact that these notices are often sent to old addresses. If there is no reply from the individual, income tax is assessed using the individual’s income reported on the federal return, and then the state issues a lien. The lien is usually discovered when the taxpayer has a refund garnishment or discovers it on his or her credit report when applying for a loan. Such states as Alabama, California, Colorado, Georgia, Minnesota, Oregon, and West Virginia aggressively apply this practice.

    Almost a year ago, Healthcare Traveler reported results of a survey of state licensing boards to determine how many referenced state tax records during the license renewal process. That survey raised another question: Which state tax agencies obtain data from the professional licensing boards to determine if a tax return should be filed? In order to assess the breadth of this practice, I contacted all 42 state revenue agencies that administered income tax (eight have no income tax) and asked the following three questions:

    1) Does your department actively cross reference professional practice licenses?

    2) Does your department cross reference licenses of non-residents?

    3) Does your department have the capability to conduct such checks and share the information?

    Thirty-one of the states were willing to provide the information.

    Of that group, 18 revealed that they actively cross reference licenses and 14 of the 18 confirmed that they automatically generate a letter to non-residents holding licenses that do not file a return. The final question addressed the capacity of others to access such data. In the past, many state government divisions processed data on data platforms that were incompatible with those of other state agencies.

    However, this has drastically changed in the last few years. Twenty-three of the state agencies acknowledged the ability to cross reference professional practice licenses.

    Four agencies declined to discuss the topic because they didn’t want to reveal their audit/discovery techniques to the public.

    This leaves 15 remaining states that can potentially begin employing this process if they choose to go down this road.

    In conclusion, this practice does affect individuals who hold licenses in multiple states, and can catch up to them when they least expect it.

    There are two ways to alleviate such headaches. One is ensure that your home address is used on every transaction possible. The second is file a “zero return” in every state where a license is held. The former is easier, yet not foolproof, especially in states like California and Oregon. In some cases, the later option may be the more prudent approach.


    Cross Reference Professional Licenses

    YES

    NO

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    Non-Residents Holding Professional Licenses

    Yes

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    CAPABILITY

    YES

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    NOT AT LIBERTY TO DISCLOSE

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    Joseph Smith, EA/RRT, is a director and chief financial officer of the Professional Association of Nurse Travelers (pantravelers.org). A former traveler, he can be reached at traveltax.com or josephcsmith.com.

    Joseph Smith
    Joseph Smith, RRT, EA, is an enrolled agent and owner of TravelTax LLC (TravelTax.com), based in Norfolk, Nebraska.