If you apply your $5.00 reciprocal credit to your $4.00 state use tax reserves, your government usage taxes will be reduced to zero. However, the additional $1.00 in state taxes paid to State 2 cannot be used to reduce local user tax by $4.00 and cannot be repaid. Since no credit is allowed on the local user tax you owe in New York, you must pay a total local user tax of $4.00. To see if you are entitled to a mutual credit, you need to determine if a New York mutual credit is authorized for the state in which you made your purchase, and then see the following examples to find the scenario that applies to your situation. If the other jurisdiction does not grant reciprocal credit for sales or user taxes paid to the State of New York and/or its locations, the New York State or the local mutual credit are not permitted. A mutual credit is not automatically authorized simply because some of the money identified as tax has been paid to another state. The amount paid must meet the above criteria to be eligible for the New York State Tax Credit or local mutual use. Note: If a mutual credit is not authorized, you can ultimately pay money to the State of New York and the other state. If another state allows the mutual credit only for the New York State tax, the New York Mutual Credit is only authorized against the New York State tax and only for the public tax of the other state. If the public tax paid in the other state exceeds the New York State user tax, no New York City user tax is payable, but the amount of the surplus is not refunded and cannot be used to reduce the amount of local usage tax due in New York. If the local tax paid in the other state exceeds the local usage tax due in New York, no local user tax is due in New York, but the excess amount is not refunded and cannot be used to reduce the amount of public use tax due in New York. The map below shows 17 states (including the District of Columbia) where non-resident workers living in different states do not have to pay taxes.
Move the cursor over each orange state to see their reciprocity agreements with other states and find out what form non-resident workers must submit to their employers to be exempt from deduction in that state. Since State 2 only authorizes the new York State tax credit, New York allows a mutual credit only for the state tax paid to the state 2.