Tunes -- Not trying to argue with you, and I live in a tax free state. I think if you look at this logically you can see the state's position. Let me give you a hypothetical that is uber extreme but illustrates my point. If a person made $70,000 in a year and chose his w-4 to overpay taxes of $5,000 a month (let's say he did not need current income), he would in effect pay $70,000 in taxes and have zero income. The state would be taxing nominally 7% of $0. So the state gets 0 money in their coffers to pay for infrastructure. The following year the federal government says, "I don't know WTF you're doing, but here is $55,000 taxes refund." (Thus you're $15,000 in taxes or thereabouts would have gotten paid to the federal government.) The state would still be left holding the bag with 0 income reported. The state, however, says "Wait a minute, you owe us taxes on $55,000 of income you didn't report," which seems fairly logical to me.

Since I don't pay any state taxes, I may have misunderstood what you were saying and if somehow you have to pay state tax on federal tax, I would agree with you wholeheartedly on the BS issue.

Clear as mud?

PS: Sorry, I see Sailing addressed this. I'm just a very slow typist.