State income tax

In computing the deduction for depreciation, several states require different useful lives and methods be used by businesses.

States uniformly allow reduction of gross income for cost of goods sold, though the computation of this amount may be subject to some modifications.

Many require that depreciation deductions be computed in manners different from at least some of those permitted for federal income tax purposes.

Six of the states allow a full or partial deduction for federal income tax.

These are generally imposed at a flat rate and tend to apply to a limited set of income items.

Constitutional requirement that is subject to interpretation, generally by the state's comptroller or tax office, and often in administrative "letter rulings".

Whether Quill applies to corporate income and similar taxes is a point of contention between states and taxpayers.

[44] The "substantial nexus" requirement of Complete Auto, supra, has been applied to corporate income tax by numerous state supreme courts.

[49] The records of no colony covered by Rabushka[50] (the colonies that became part of the United States) separated the property and faculty components, and most records indicate amounts levied rather than collected, so much is unknown about the effectiveness of these taxes, up to and including whether the faculty part was actually collected at all.

Becker,[51] however, sees faculty taxes as routine parts of several colonies' finances, including Pennsylvania.

On the other hand, in 1835, Pennsylvania instituted a tax on bank dividends, paid by withholding, which by about 1900 produced half its total revenue.

These taxes may have been spurred by the ideals of Jacksonian democracy,[54] or by fiscal difficulties resulting from the Panic of 1837.

[56] As with the national taxes, these were made in various ways to produce substantial revenue, for the first time in the history of American income taxation.

On the other hand, as soon as the war ended, a wave of abolitions began: Missouri in 1865, Georgia in 1866, South Carolina in 1868, Pennsylvania and Texas in 1871, and Kentucky in 1872.

Following the 1895 Supreme Court decision in Pollock v. Farmers' Loan & Trust Co. which effectively ended a federal income tax, some more states instituted their own along the lines established in the 19th century: However, other states, some perhaps spurred by Populism, some certainly by Progressivism, instituted taxes incorporating various measures long used in Europe, but considerably less common in America, such as withholding, corporate income taxation (as against earlier taxes on corporate capital), and especially the defining feature of a "modern" income tax, central administration by bureaucrats rather than local elected officials.

[63] This period coincided with the United States' acquisition of colonies, or dependencies: the Philippines, Puerto Rico, and Guam from Spain in the Spanish–American War, 1898–99; American Samoa by agreements with local leaders, 1899-1904; the Panama Canal Zone by agreement from Panama in 1904; and the U.S. Virgin Islands purchased from Denmark in 1917.

The Panama Canal Zone was essentially a company town, but the others all began levying income taxes under American rule.

The effect is that residents pay the equivalent of the federal income tax to the dependency, rather than to the U.S. government.

Although mirroring formally came to an end with the Tax Reform Act of 1986, it remains the law as seen by the U.S. for Guam and the Northern Mariana Islands because conditions to its termination have not yet been met.

The U.S. acquired one more dependency from Japan in World War II: the Trust Territory of the Pacific Islands.

Two states, South Dakota and West Virginia, abolished Depression-era income taxes in 1942 and 1943, but these were nearly the last abolitions.

For about twenty years after World War II, new state income taxes appeared at a somewhat slower pace, and most were corporate net income or corporate franchise taxes:[72][73] As early as 1957 General Motors protested a proposed corporate income tax in Michigan with threats of moving manufacturing out of the state.

[82] A few more events of the 1970s follows:[73] (Also during this time the U.S. began returning the Panama Canal Zone to Panama in 1979, and self-government, eventually to lead to independence, began between 1979 and 1981 in all parts of the Trust Territory of the Pacific Islands except for the Northern Mariana Islands.

The resulting countries - the Marshall Islands, the Federated States of Micronesia, and Palau - all levy income taxes today.)

Governor Lowell Weicker's administration imposed a personal income tax to address the inequities of the sales tax system, and implemented a program to modify state funding formulas so that urban communities received a larger share.

In 1942, to help fund World War II, the federal government took over the raising of all income tax, to the exclusion of the states.