State Tax Relief: Resolution Options for Individuals and Businesses

When you’re dealing with tax problems, you probably think of the IRS first, but each state also has its own tax agency with its own set of tax laws and collection processes. Unfortunately, because every state is different, there are complex and varying laws, procedures, and resolutions to sift through.

This landscape can be very confusing for individuals, but it can be even worse if you work or run a business, especially if you have to deal with the Department of Revenue in multiple states.

Staying compliant means following both federal and state tax laws. When you have a tax issue, like unpaid back taxes or penalties, it probably involves both federal and state revenue agencies. That’s why you need to look for a tax relief specialist who has experience with both state and federal tax resolution options. Unfortunately, many big firms only focus on IRS tax problems, and they don’t have the experience to guide taxpayers through state problems.

At 20/20 Tax Resolution, we have dedicated experience dealing with state tax problems throughout the country, and we are ready to help you understand your state’s specific tax laws. This guide provides basics about state tax relief.

How State Tax Agencies Work

Every state in the U.S. has its own tax agency that enforces tax collections and laws and handles tax audits. State tax agencies operate separately and independently from the IRS, but if you don’t pay your taxes, they can take similar collection actions. These may include issuing tax liens, levies, or wage garnishments.

The IRS governs federal tax law, and so its regulations apply to individuals and businesses across the board. With state agencies, things become more complicated. Each agency has its own set of rules, deadlines, and procedures. They also have their own guidelines for offering tax relief, whether you want to apply for a payment plan or offer in compromise for your state taxes.

For example, many states allow you to apply for an installment agreement if you can’t pay your full tax bill when it’s due, just like the IRS. However, compared to the IRS, states tend to have stricter application criteria and shorter repayment terms.

Another example is penalty abatement. The IRS provides relief options for taxpayers with first-time penalties, but not all states do. Colorado, for example, doesn’t have an official penalty abatement offering. California, in contrast, does accept requests for waiving penalties.

State Tax Obligations

In most states, individuals must file and pay state income tax. The following states do not have an income tax, helping to reduce tax payment and filing requirements for individuals:

• Alaska
• Florida
• Nevada
• New Hampshire (no tax on earned wages)
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

However, in these states, businesses have to deal with a variety of different taxes including sales, gross receipts, corporate income, etc:

Wherever you live or operate your business, make sure you check your state’s tax laws when you’re looking for the right tax resolution option.

Common State Tax Issues

Any problem that taxpayers have on a federal level probably also applies to their state taxes. Common tax issues include:

• • Unpaid state income taxes: Unless you live in a state without income tax, you will need to pay state income tax on your taxable income. It’s common for people to get behind on paying what they owe, but this can lead to state-imposed tax penalties, building interest, and eventually more serious collection actions, such as tax liens and levies on your assets.
  • Sales tax issues: Forty-five states, and the District of Columbia, have a state sales tax. Businesses may run into sales tax issues if they don’t collect it but sell taxable services, if they collect but don’t remit sales tax, or if they misunderstand nexus laws. Penalties for not paying sales tax tend to be very high, and state revenue departments are not as likely to offer payment plans for sales tax as they are for individual income tax.
  • Payroll tax problems: Businesses may make common payroll tax errors like incorrect calculations, underreporting, missing deposit due dates, or failing to classify employees properly. Businesses must file federal payroll returns, and if they operate in a state with income tax, state withholding returns as well.

• Additional employment taxes: Many states require employers to pay additional taxes such as family leave, unemployment, etc. To avoid penalties, you must register for and pay these taxes, and failure to do so can lead to significant penalties and collection actions. 

• Property tax disputes: Property taxes vary by state and locality. Disputes may arise when you want to challenge a property tax assessment.

Ignoring tax issues can cause the situation to escalate. Individuals may face wage garnishment and asset seizure. Businesses may also face asset seizures, loss of licenses, and forced closures.

If you’re dealing with any of these state tax issues, talk to a professional about how to get the matter resolved. At 20/20 Tax Resolution, we personalize our services to ensure you get the best outcome no matter your state.

Options for State Tax Relief

While options vary from state to state, there are a few common resolution avenues that may be available to you on the state level including the following:

Installment Agreement/Payment Plan

An installment agreement is when you set up a plan with your state to pay off your state taxes over a set amount of time with a set monthly payment. This option is the most common form of tax relief, and if you have a history of compliance and can pay off the debt within two to three years, you’re likely to qualify in most states.

Note, however, that it is almost always harder to set up a payment plan on business taxes than individual taxes. Working with a state tax expert helps to ensure you get the best outcome possible, whether you’re dealing with your business or personal finances.

A payment plan is a good option if you can’t afford your full bill right now but can pay it off soon. Note that most states also continue to assess interest and penalties while you make payments, but as long as you’re in a payment arrangement, the state will not pursue involuntary collection actions against you.

Offer in Compromise

Some states give you the option to make an offer to settle your state tax balance for less than owed, known as an offer in compromise. This may be a good option if you’re having financial trouble that makes it impossible for you to pay your full balance. Although most states allow offer in compromise requests, they have different qualification requirements.

In Arkansas, for instance, you must submit detailed documentation and show you are financially distressed. In Colorado, you must first be approved for an offer in compromise on a federal level through the IRS. New Mexico, in contrast, only provides an offer in compromise if the taxpayer doubts their liability (not if they cannot afford to pay).

Note that states are generally not willing to compromise trust fund taxes, meaning that it can often be much harder or even impossible to get a settlement for business taxes. Trust fund taxes refer to taxes that you collect from another person and remit to the government, and two of the most popular are sales tax and state withholding tax.

Penalty Abatement

The state tax agency will charge penalties if you don’t file or pay your taxes on time. Some states allow you to ask for waivers, particularly if you have an otherwise good tax compliance history. The state may also waive penalties if they find you were dealing with unforeseen circumstances that prevented you from complying but were otherwise acting in good faith.

Hardship Status

If you’re dealing with a temporary financial hardship, you could ask for your state to put your account in currently not collectible status. This way, they’ll temporarily pause collections until your situation improves and you can pay. Unfortunately, this option is usually not available to businesses.

Many states offer this temporary hardship status similarly to the IRS, including California. However, it’s important to note that not all states offer this type of relief. For example, Colorado doesn’t offer a hardship status option for taxpayers with overdue taxes.

Innocent Spouse Relief

The IRS and some states allow you to apply for innocent spouse tax relief when you file jointly with your spouse and they misreported their income and you weren’t aware of the mistake. Again, however, this program is not available in every state, and that’s why if you’re having tax problems, it’s critical to hire a tax resolution firm that has experience in your state.

Using State Tax Online Portals

Most states – currently 32 – have online portals, or “taxpayer access points,” where you can apply for a variety of resolution options easily. You will need to provide your basic details and contact information, and include any supporting documentation that supports your request, such as financial documents and tax returns.

Other actions you can take on state tax portals:

• Make tax payments, including estimated tax payments
• Register a new business
• Apply for sales tax exemption
• Request a tax filing extension
• Request a payment plan or penalty waiver
• File for unemployment insurance
• Track your tax refund
• Search for state tax liens
• Verify your identity
• Request a hearing

Many states require businesses to file and pay online, and they will only allow you to use paper filings if you request an exemption. Many online portals can connect to bookkeeping, invoicing, or point-of-sale software to streamline this process.

In contrast, however, for individual taxpayers, some states require that you fill out paper forms and mail them in. When you’re not sure what your state requires, contact our office to get started with an expert.

How 20/20 Tax Resolution Can Help with State Tax Relief

No matter what state you live or operate your business in, the team at 20/20 Tax Resolution can help. Our attorneys help taxpayers get the resolution they need for both state and IRS tax issues for individuals and businesses. We provide a seamless, customized approach to address your tax problem.

Issues we can help you with include:

• Income tax problems
• Tax liens
• Tax levies
• Tax penalties
• Wage garnishments
• Business taxes
• Individual taxes
• Payroll tax problems
• Sales tax issues

We understand the nuances of state-specific tax laws. We’ll help you craft the right solution, whether that’s a payment plan, offer in compromise, penalty abatement, or appeal. Reach out to 20/20 today for a free consultation to talk about your state or IRS tax issue.

Navigating Your State Tax Issue

Whatever tax problem you’re dealing with, early intervention is key to avoid further penalties and collection actions. State tax problems can be just as serious as IRS issues. Because state laws can be challenging to understand, they often require an expert to get everything resolved properly. Act as soon as possible to avoid escalating penalties and even legal actions.

Take the first step toward resolution by reaching out to the 20/20 Tax Resolution team. We offer a free consultation to get to know your circumstances. We’ll walk through your state-specific laws and what they mean for your finances.

Get in touch with 20/20 Tax Resolution today to get started.

FAQs about State Tax Relief

Do I Have to Pay State Taxes?

Most states – all but nine – require you to pay state income tax. The deadline is the same as the federal tax deadline for submitting tax returns. If you’re required to pay quarterly estimated taxes, you’ll need to do this on both the federal and state level.

Do Businesses Need to Pay State Taxes?

If you operate a business, you may need to deal with multiple state taxes including sales tax, withholding tax, gross receipts, corporate income, or any other taxes assessed by the state where you operate your business or have nexus due to remote sales.

What If I Don’t Pay State Taxes?

If you don’t pay or file individual or business taxes as required, the state tax agencies will issue penalties and interest. You can apply for relief options offered by your state, which commonly include payment plans, offers in compromise, penalty abatement, innocent spouse relief, and temporary hardship status.

How Do I Get Help with State Tax Relief?

Look up the contact information for your state tax agency. Many have online portals and websites with detailed information. When you’re seeking state tax relief, work with a tax professional who understands your state’s laws. They can help you find the right option to resolve your tax problem.

Can I Set up a Tax Payment Plan with My State?

Most states allow taxpayers to set up installment agreements to pay off their taxes, similar to the IRS. This way, you can make payments over a set period to get your balance paid off and avoid unwanted collection actions.

Can My State Tax Agency Charge Me With a Tax Crime?

Just as the IRS can charge taxpayers for crimes such as tax evasion or tax fraud, states can pursue charges for failing to pay state income taxes or filing a fraudulent return. Avoid legal trouble by taking action on your state taxes now and talking to a tax attorney about your state tax problem.