Why does TurboTax add income from a non-income tax state to my state return?
Sure. We are commonly asked why income earned in states that don’t assess income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) is included as income on a “taxable” state return. For example, a full-year Oklahoma resident that earned income in both Texas and Oklahoma. She notices that TurboTax is including her Texas income on her Oklahoma return. Shouldn’t the Texas income be excluded from her Oklahoma return because Texas doesn’t collect income tax? The answer is no. It is a widely-held belief that income earned in a non-income-tax-collecting state is exempt from taxation by the resident state. This is not true. In this case, our taxpayer’s Texas income would be taxed as Oklahoma income because she is an Oklahoma resident and the Texas income was not already taxed. Now let’s say our Oklahoma resident moved to (or from) Texas during the tax year. Part of her yearly income came from Oklahoma sources and was earned during the time she was an Oklahoma resident
