I live in Illinois and own some farm land in Iowa which I rent to farmers there for cash rent.
The rental agreements, and cash flows, real estate taxes, etc are handled by a management firm in Missouri.
Up until this past summer I have always declared the rental income on my federal and Illinois returns and paid the due taxes. Out of the blue this past summer, Iowa went back to 2004 and claimed I should have been paying them this whole time ( I have owned some of the land since 1996). They assessed the tax, added interest and penalties and demanded immediate payment or further penalties and interest would be added.
Shocked, I paid what they required. But as I think about it, it is not clear to me that this was their right. I never go to Iowa and I do not enjoy their services etc.. I certainly cannot vote there. Furthermore, the farmers who rent the land pay income taxes to Iowa.
Should I have been paying Iowa all along? Or, is Iowa over reaching their authority?
Can someone clarify the basis upon which a state can tax you?