When you live in a high tax state like Iowa or Minnesota, it can seem that there is little risk in failing to file returns in other states where may have taxable income. After all, you probably will get a full credit on your home state return for the tax paid in the other state. The preparer will charge for doing a return for the other state, so why go through the trouble?

Peter Reilly tells a story of how this approach can get expensive. A New York couple sold some California property. They paid $28,000 in New York taxes on the gain, but never bothered to file in California. The Golden State caught up with them and hit them with an assessment. They still had time to claim the credit for taxes paid in California on their New York return, but something went awry:

By Notice of Disallowance dated October 9, 2009, the Division disallowed petitioners’ claim for refund in full, explaining that the deadline for filing the amended return had expired on April 15, 2009, and since the return had not been received by the Division until September 14, 2009, the refund must be denied.

If you fail to file in another state, the statute of limitations never starts to run. Meanwhile, you normally only get three years to amend your home state return if the other state assesses you. If the other state taxes longer than that to track you down, you pay full tax in both states.