States Will Change Tax Laws
Missouri and Oklahoma are also reportedly looking into making similar changes.
In the states that allow deductions of federal income taxes paid, taxpayers report federal income tax refunds as income on their state tax returns. The current controversy is a result of the IRS stating that these states should not tax their residents on this summer's federal income tax rebates.
The other four states where residents experience a state tax effect based on federal income tax are Alabama, Louisiana, Montana, and North Dakota. None of these states has indicated any plans thusfar to exempt the federal income tax rebates from state income tax.