State Tax Penalties

State and local tax systems on a national basis are extremely diverse.  All of the states employ a broad range of taxes and fees to fund state and local government operations.  The taxes and fees in a particular jurisdiction is often dependant on revenue needs, the tax base of local city and town governments and the financial relationship between the state and the cities and towns and the level of government services demanded by residents.

While every state will impose its own schedule of penalties on resident taxpayers, below are some commonly imposed State taxation penalties and the corresponding “reasonable cause” sometimes allowed to waive the penalty.

Common Types of State Tax Penalties

  • Dishonored, bounced Check Penalty - If a check in payment of any tax, interest, penalty, fee or other charge is not paid, there shall, in addition to any other penalties, be paid as a penalty by the person who tendered such check upon notice and demand by the commissioner a penalty of $30 or the amount of the payment, whichever is less. Reasonable cause to waive the penalty:  Reasonable belief that the check was good and would be paid.
  • Dishonored Electronic Funds Payment Penalty - The penalty for dishonored checks is extended to electronic funds transfers. If an electronic funds transfer is made in payment of a tax, and the transfer fails, the penalty will apply. The amount of the penalty is $30 or the amount of the payment, whichever is less.
  • Failure to File, Report or Pay Taxes Penalty - A taxpayer that fails to comply with the prescribed method for filing, data transfer, or payment will be considered not to have made the required filing or the required payment. DOR may impose a penalty up to $100 for each improper return, document, or data transmission, and for each improper payment. Reasonable cause to waive the penalty: Show that the failure to file was due to reasonable cause and not willful neglect.
  • Late Filing Penalties - If a State return is not filed with Department of Revenue on or before its due date or within any extension of time granted by DOR, there shall be added to and become a part of the tax a penalty of 1% of the amount required to be shown as tax on the return for each month or fraction thereof during which such failure continues not to exceed 25% percent. Reasonable cause to waive the penalty: Taxpayer must demonstrate the failure to file a return on time was due to a reasonable cause and not negligence.
  • Partnership Return Failure to File - A partnership required to file a return under Section 7 that fails to file the return within the time provided, will be levied with a penalty of $5 for every day in which it is in default will be assessed. Reasonable cause to waive the penalty:  none.
  • Tax Preparer’s Penalty - The professional preparer of a return who is willfully a party to submitting a false or fraudulent return may be fined more than $100,000.00 or a sentence of 3 years in prison or both.

With all the State taxation penalties and interest on taxation penalties available for a State to impost on an unwary and inexperienced taxpayer combined with the penalties that might be imposed by the IRS or the federal government it seems irrefutable that the advice and direction that a tax attorney can provide is an essential tool in preserving the taxpayers rights, interests and keep his money in his own pocket and out of the State’s revenue treasury.

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