Posted by admin on March 1, 2012 at 5:11 pm
Glover v. Comm, a recent tax court decision, presents several issues to Merchant Mariners. Mr. Glover worked for Reinauer Transportation. His tugs pushed oil coastwise as far as Virginia. The tugs would assist on docking jobs when in the New York area.
Mr. Glover took deductions on his income tax returns that would be considered acceptable if he was on a “temporary assignment”. Mariners have generally been characterized as such. Thus, their tax home has been considered to be their residence.
Mr. Glover’s attorney cited the now infamous Sailor Tax cases Johnson and Westling, stating that Glover’s tax home was in Missouri as per the decisions. Mr. Glover’s attorney did not introduce any statutory evidence (Jones Act Law) defining tax home for State tax liability purposes.
The attorney failed to meet substantiation requirements to shift burden of proof to the respondent. This means that the IRS’s position is considered to be correct and that Glover was required to meet the burden of proof.
The Tax Court has defined a Tax Home as the area surrounding a taxpayer’s principal place of business. If a taxpayer does not have a principal place of business, it can shift to their residence.
The Court concluded that all of Glover’s arguments were moot irrelevant, or without merit. This is a dangerous outcome that could cause global implications if not addressed. We’re talking coastwise and foreign.
We need someone to appeal this decision….
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Posted by admin on February 28, 2011 at 3:11 pm
Suz asked this question
So, what about if you live in one state (TN) and work as a merchant mariner in another state (HI), 45 days on/45 days off rotation? Do you pay HI state taxes, or does the payroll clerk change your home state to TN, which has no state income tax? This will be my fiance’s issue next year as we are moving from Hawaii to Tennessee, but he will be commuting for his pull. Also, would travel expenses to and from HI be a deductible expense? I’ve looked at IRS publication 463 and it was a bit confusing. I’m hoping for a little clarification.
It’s going to be impossible to figure this one out via IRS publications. The problem is that we’re dealing with State law and the applicability of Title 46. Section 11108 says the following.
(a) Withholding.— Wages due or accruing to a master or seaman on a vessel in the foreign, coastwise, intercoastal, interstate, or noncontiguous trade or an individual employed on a fishing vessel or any fish processing vessel may not be withheld under the tax laws of a State or a political subdivision of a State. However, this section does not prohibit withholding wages of a seaman on a vessel in the coastwise trade between ports in the same State if the withholding is under a voluntary agreement between the seaman and the employer of the seaman.
(b) Liability.—
(1)
Limitation on jurisdiction to tax.— An individual to whom this subsection applies is not subject to the income tax laws of a State or political subdivision of a State, other than the State and political subdivision in which the individual resides, with respect to compensation for the performance of duties described in paragraph (2).
(2) Application.— This subsection applies to an individual—
(A) engaged on a vessel to perform assigned duties in more than one State as a pilot licensed under section
7101 of this title or licensed or authorized under the laws of a State; or
(B) who performs regularly-assigned duties while engaged as a master, officer, or crewman on a vessel operating on the navigable waters of more than one State.
Does this mean I don’t pay State taxes?
Unfortunately no. In this case it appears as though the mariner works in and around Hawaii. This doesn’t qualify as a foreign voyage. Meaning the mariner would file as a non-resident in Hawaii and receive a credit for taxes paid in their state of residency. The key term is INTERSTATE.
JM
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Posted by Jim on January 5, 2011 at 4:29 pm
Mariners should optimize the standard and itemized deduction
You just got a great job off the board. You just got your license. You just started shipping. You just graduated from the Maritime Academy. These events all scream change from a tax perspective. Our tax system takes a reverse psychology approach – the better we do, the more they get. It’s a disheartening blow that we wish we could alleviate. There are some planning tactics that can help. Where should we start looking for tax savings. Let’s look at our Uncle…
You get a very large, free deduction from Uncle Sam
It’s not unique to Merchant Seamen. It’s the standard deduction. Many years ago, our selfless leaders took it upon themselves to provide a deduction that would be representative of the cost of living. Now a days it’s about $6,000 for single individuals. You are allowed to use this deduction on your tax return as an offset.
Basic Tax Formula -
- Income – you take any income that is not excluded and combine it
- Adjustments – you deduct any adjustments (student loan interest, etc…) that you are entitled to
- Standard or Itemized Deduction – you subtract your standard or itemized deduction (whichever is larger) from your adjusted gross income (AGI)
- Taxable Income – After the previous offsets we go into the tax tables and determine your tax… We’ll stop at this point…
Important terms…
- Marginal Tax Rate (MTR) – the rate at which
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Posted by Jim on November 5, 2010 at 6:50 pm
Does Residence Determine Liability?
First, let’s start with the basics. If you weren’t working as a Merchant Seaman and you worked in a State, you would be liable for State income taxes to the state you worked in.
Say Billy is a plumber. He lives in Massachusetts and works in Rhode Island. He would file and pay taxes to Rhode Island as a non-resident.
Does Billy Get Taxed Twice Then?
Usually not. Your State of residence generally allows a credit for taxes paid to another State. There’s two instances where this could be an issue.
- You live in New Hampshire and work in Massachusetts. You would pay Massachusetts income taxes as a non-resident. You wouldn’t be able to deduct the taxes paid in New Hampshire as that State has NO income tax.
- You live in a State with a lower tax rate than the State you work in. Generally your credit can only equal the amount that would have been due in your State of residence.
Then why aren’t mariners taxed this way?
Understand it isn’t because you have a Z-Card. It is because of the nature of your employment. When we dive into USCS Section 46 we find a section that specifically addresses the State taxation of mariners.
(a) Withholding.— Wages due or accruing to a master or seaman on a vessel in the foreign, coastwise, intercoastal, interstate, or noncontiguous trade or an individual employed on a fishing vessel or any fish processing vessel may not be withheld under the tax laws of a State or a political subdivision of a State. However, this section does not prohibit withholding wages of a seaman on a vessel in the coastwise trade between ports in the same State if the withholding is under a voluntary agreement between the seaman and the employer of the seaman.
(b)
Liability.—
(1)
Limitation on jurisdiction to tax.— An individual to whom this subsection applies is not subject to the income tax laws of a State or political subdivision of a State, other than the State and political subdivision in which the individual resides, with respect to compensation for the performance of duties described in paragraph (2).
(2)
Application.— This subsection applies to an individual—
(A) engaged on a vessel to perform assigned duties in more than one State as a pilot licensed under section
7101 of this title or licensed or authorized under the laws of a State; or
(B) who performs regularly-assigned duties while engaged as a master, officer, or crewman on a vessel operating on the navigable waters of more than one State.
So Mariners pay their State of residence?
Usually, yes. Foreign articles are rarely an issue. Coastal Voyages meet criteria as well. There’s a few instances where there can be an issue.
- You work on a harbor tug. It never leaves the harbor of a city. It is not engaged in interstate transport.
- You work on a ferry that never completes a foreign voyage and stays in one state.
- You work on a drill platform that does not constitute a foreign voyage.
By definition, these can cause issues in determining exemption from liability. Maritime professionals working in the Gulf of Mexico should also be aware that the Gulf Zone Opportunities Act may provide additional aid in obtaining specific tax status.
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