State Income Tax Article 

The Stars Might Lie, but the Numbers Never Do

Posted on May 16, 2024

Written by
Janette M. Lohman CMI, CCIP, CPA, Esq.  

 

Read Time: 5 minutes

Back in the Dark Ages (pre-Wynne17), when I used to teach state and local tax law at the Saint Louis University School of Law, my students and I grappled with the issue of whether a state should have the right to tax 100 percent of its residents’ income, given that the state has substantial nexus over the person, but not necessarily any nexus at all over 100 percent of that resident’s income if the person worked in another state.

That states are required by the Constitution to give to their residents a credit for income taxes paid to another state (up to the amount of the resident state’s income tax) on the same income seems to be an imperfect solution to the “double tax” issue, because the poor resident taxpayer is always stuck with paying an amount equal to the higher of the two taxes. If the resident state’s rates are lower, the taxpayer will pay the higher tax on the earned income, but the lower residence tax on unearned income (and vice versa).

Many of my students, however, liked better the concept of both types of income acquired by an individual being taxable by only one state — that is, the earned income would only be subject to state tax in the employment state, and the unearned income would only be subject to state tax in the residence state. This concept seems to resolve the nexus issue, because each state would only be able to tax income that was rightfully sitused within its jurisdiction, and each type of income would only be subject to the appropriate rate, and only once. In situations in which the residence state’s rate is higher, the taxpayer would pay the employment state’s lower rate on earned income, and in situations in which the residence state’s rate is lower, the taxpayer would pay the employment state’s higher rates on the earned income. Fair is fair, and my students thought that was as it should be. Besides, although taxpayers working and residing in different states would still have to file two returns, those returns would be less complicated without the difficult and often confusing “credits for taxes paid” calculations.

Diane Zilka’s situation, however, further exacerbates the complicated “credits for taxes paid” issue. Because Ms. Zilka resided in Philadelphia, she had to report 100 percent of her Wilmington, Delaware, earnings to two state and two local taxing jurisdictions. The combined Delaware SALT rate on wages was 6.25 percent, and the combined Pennsylvania SALT rate on wages was 6.99 percent. The Delaware rate was higher than the Pennsylvania rate, so Pennsylvania gave Ms. Zilka a full credit, with some left over. Unfortunately, however, the Wilmington rate was lower than the Philadelphia rate, and although Ms. Zilka got a full credit against Philadelphia tax for the Wilmington tax she paid, Philadelphia flatly refused to give Ms. Zilka credit for the excess Delaware taxes she paid against her Philadelphia tax. So, using $1,000 as her hypothetical income, (and assuming no unearned income) how much tax should she have paid, and how much did she actually pay?

  • If we adopted my student’s “nexus” computation in Ms. Zilka’s situation — EUREKA — we would have achieved total parity! That is, if she had only had to report income earned in Wilmington, Delaware, to Wilmington and Delaware, and assuming she only had earned income of $1,000, Ms. Zilka only would have been subject to a 5 percent Delaware state tax and a 1.25 percent Wilmington tax, or a total tax of 6.25 percent (which is, at least according to my students, as it should have been), regardless of the aggregation rules. Applying my students’ proposal, she would have paid a total of $62.50 to the jurisdictions in which the income had been earned, and Philadelphia and Pennsylvania would not have been involved at all.
  • Under the “acceptable” credit rules —and with that parity being all that Ms. Zilka is requesting — if we assume the state and city taxes are aggregated in both Pennsylvania and Delaware, Ms. Zilka still would have to pay the higher of the two taxes (or a total tax of 6.99 percent (5 percent to Delaware, 1.25 percent to Wilmington, and 0.74 percent to Philadelphia)). Philadelphia’s haul is a windfall, given that the income was earned in Wilmington. In the relief that she seeks, however, Ms. Zilka only wants to pay this higher of the two combined rates, for $69.90 total.
  • By not aggregating the state and local tax rates, however, Philadelphia gets a super windfall of a whopping 1.93 percent tax on income that was earned in Wilmington. Under the Pennsylvania court’s decision, Ms. Zilka had to pay $50 to Delaware, $12.50 to Wilmington, and a staggering $19.30 to Philadelphia, for a total of $89.20. (Gulp.)

Poor Ms. Zilka! Let us assume that her officemate is earning exactly the same salary as she does and is a Wilmington resident. The officemate will only pay $62.50 of combined SALT on the identical amount of income earned from the same employer in the same city and state. Ms. Zilka would have to move to Wilmington, Delaware (which, obviously, the Pennsylvania courts are encouraging her to do) to achieve SALT parity with her colleague. Ms. Zilka’s Philadelphia neighbor, whom (we assume) is earning exactly the same salary as she does, but who works in Philadelphia, will pay $69.90 of combined state and local tax on the identical amount of earned income. As a reminder, all Ms. Zilka wants is to NOT pay more combined SALT on the same amount of earned income as her Philadelphia neighbor pays. I am certain that my distinguished board member colleagues will continue to vet all the scholarly constitutional arguments defending why the Pennsylvania and Philadelphia taxes must be aggregated, how Philadelphia’s actions (and Pennsylvania’s acquiescence) are clearly in violation of Wynne, how similarly situated courts in other jurisdictions are upholding the aggregation mandated by Wynne and who, accordingly, would give Ms. Zilka the “half a loaf” she is requesting, thus causing a split among the circuits, and so forth . . . but isn’t what’s wrong with this situation quite obvious? Who are the Pennsylvania courts trying to kid? Where could Philadelphia get the legal authority to enact and enforce wage taxes but from the express municipal enabling laws of the Commonwealth of Pennsylvania? For the Pennsylvania courts to deny Pennsylvania’s responsibility for the Philadelphia wage tax is analogous to situations in which parents deny responsibility for the acts of their wayward minor children. Philadelphia was already benefiting from the “credit for taxes paid” structure by “legally” getting to tax a comparatively “little bit” of income earned somewhere else, but that was not enough. Philadelphia got greedy — and Pennsylvania let Philadelphia get away with it. Or will Philadelphia get away with it? My only other concern is whether the U.S. Supreme Court will put a stop to this injustice and affirmatively answer the aggregation issue (again) in favor of Ms. Zilka. Oh, please!


This article is republished with permission Tax Notes State.

 

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How to Earn a CMI Designation in Sales Tax

The Certified Member of the Institute (CMI) designation in Sales Tax is a prestigious certification offered by the Institute for Professionals in Taxation® (IPT). This designation is a mark of excellence, demonstrating a high level of expertise, professionalism, and ethical standards in the field of sales & use taxation. Earning the CMI - Sales Tax designation is a significant professional achievement and a testament to one's commitment to continued learning and excellence in the tax profession.

This guide outlines the steps and requirements to earn the CMI designation in Sales Tax, highlighting the process from start to finish.

Understanding the CMI Designation

The CMI - Sales Tax designation is a symbol of proficiency in sales taxation and is recognized across the industry. It signifies that the holder has demonstrated an in-depth knowledge of sales and use tax concepts, laws, and practices. The designation also reflects a commitment to the ethical standards set forth by IPT.

The CMI - Sales Tax designation is particularly valuable for professionals who wish to advance their careers in sales & use tax, including those working in corporate tax departments, law firms, or consulting practices. It provides a competitive edge, enhancing one's credibility and esteem.

Prerequisites for Earning the CMI Designation

Before applying for the CMI designation in Sales Tax, candidates must meet specific prerequisites set by IPT. These requirements ensure applicants have a solid foundation of experience and knowledge in the field.

1. Membership with IPT
The first requirement is to be a member in good standing with IPT. Membership provides access to many resources, including educational programs, networking opportunities, and industry updates.

2. Relevant Experience
Candidates must have a minimum of five years of professional experience in sales and use tax. This experience must be full-time and demonstrate a progression in responsibilities and complexity of work. IPT considers a broad range of experiences, including compliance, consulting, and management roles.

3. Education
Candidates must complete certain IPT sales tax schools and other educational programs. These programs are designed to build a solid foundation on the core topics and principles of sales & use tax and enhance the candidate’s knowledge of the latest industry trends and regulations.

The CMI Application Process

Once the prerequisites are met, candidates can begin the formal application process for the CMI - Sales Tax designation. This process involves several steps, each designed to assess the candidate's knowledge and experience.

1. Application Submission
Candidates must submit a comprehensive application that includes detailed information about their professional experience and education. The application must demonstrate that the candidate meets all the prerequisites and is prepared for the next stages of the certification process.

2. References
Candidates are required to provide professional references who can attest to their experience, expertise, and ethical standards in sales & use tax. These references should be individuals who have worked closely with the candidate and are familiar with their professional qualifications. References from other IPT members who hold an IPT designation are highly beneficial.

3. Review by the CMI - Sales Tax Professional Designation Committee
The application and references are reviewed by the CMI - Sales Tax Professional Designation Committee. This committee is composed of experienced professionals in the field of sales & use tax who are responsible for ensuring that candidates meet the high standards required for the CMI - Sales Tax designation.

4. Approval to Sit for the CMI Examinations
Once the application is reviewed and approved, candidates are granted permission to sit for the CMI - Sales Tax Examination. This approval is an important milestone in the certification process.

Preparing for the CMI - Sales Tax Examinations

The CMI - Sales Tax Examinations are rigorous tests of the candidate's knowledge and understanding of sales and use tax concepts, laws, and practices. To succeed, candidates must prepare thoroughly.

1. Educational Programs
IPT offers many educational programs designed to help candidates prepare for the examination. These programs include webinars, seminars, and courses that focus on key sales & use tax topics. Attending these programs can provide valuable insights and reinforce the candidate’s understanding of complex concepts.

2. Study Materials
IPT provides a study guide outline to help candidates prepare for the examination. This outline covers various topics, including sales & use tax principles, tax law, and a court case listing. Candidates are encouraged to review this outline and supplement their study with additional resources.

Taking the CMI - Sales Tax Examinations

The CMI - Sales Tax Examinations are the culmination of the certification process. They are designed to test the candidate's knowledge, analytical skills, and ability to apply sales tax principles in real-world scenarios.

Written Exam:

1. Exam Format
The written examination is administered on a digital assessment platform, consisting of multiple-choice, true/false, short answer, and court case questions. The questions are designed to assess the candidate’s understanding of sales and use tax principles and laws, and the application of these principles in practical situations.

2. Time Management
The exam is time-limited, so candidates must manage their time effectively to ensure they can complete all test sections. It is important to practice answering questions under timed conditions during the preparation phase.

3. Passing the Exam
To pass the written examination, candidates must achieve a predetermined passing score.

Oral Exam:

1. Exam Format
The oral examination is conducted through an interview and presentation between the candidate and two CMI - Sales Tax Committee members. The examination is conducted to determine the candidate's presence, ethics, and professional conduct, as well as the reasoning and rationale to form conclusions and make sound judgments regarding complex sales & use tax scenarios.

2. Time Management
The oral exam is limited to 30 minutes, so candidates must utilize their time to effectively present their findings and establish their business acumen. Candidates should also be prepared to answer questions from the committee members and elaborate more on certain topics and principles in their findings.

3. Passing the Exam
To pass the oral examination, candidates must achieve a passing score on presentation, content knowledge, and ethics. Not passing the ethics component alone is considered a failure of the oral exam.

Post-Examination: Earning the CMI Designation

After passing the CMI - Sales Tax Examinations, candidates are awarded the CMI - Sales Tax designation. This achievement is a significant milestone in a sales tax professional's career.

1. Certification
Successful candidates receive a formal certification from IPT, recognizing their achievement and granting them the right to use the CMI - Sales Tax designation. This certification is a valuable addition to the candidate’s professional credentials and can be proudly displayed in professional settings.

2. Ongoing Professional Development
Earning the CMI - Sales Tax designation is not the journey's end. To maintain the designation, professionals must continue their education and stay current with industry developments. IPT requires CMI - Sales Tax certified members to complete continuing education hours regularly and adhere to the IPT Code of Ethics.

3. Networking and Involvement
CMI - Sales Tax professionals are encouraged to remain active in the IPT community. This involvement includes attending conferences, participating in committees, speaking at IPT programs and schools, and contributing to the ongoing development of the sales & use tax profession.

Final Words

Earning the CMI designation in Sales Tax is a challenging but rewarding process. It requires a combination of experience, education, mastering the examination process, and a commitment to ethical standards. For those who achieve it, the designation opens doors to advanced career opportunities, professional recognition, and a respected place in the sales & use tax community.
The Institute for Professionals in Taxation is dedicated to supporting its members throughout this process, providing the resources, education, and guidance needed to succeed.

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Make plans now to be part of IPT's golden anniversary conference, where state and local tax professionals gather to honor the past and shape the future. Join IPT in paradise as we celebrate five decades of excellence in state and local tax education and professional connection.  While we look forward to celebrating this milestone together, the 2026 Annual Conference is focused on offering an expansive and enriching educational program.

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Join a diverse community of more than 6,600 members and achieve educational excellence, earn professional certification, and gain access to a world-class network. With IPT, you can advocate for equitable administration of state and local taxes, participate in volunteer opportunities to grow your leadership skills, and establish a stronger professional reputation by participating on our committees.

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