Yesterday, I spoke with a lady in California who just had her bank accounts frozen by the State of New York - $8000 was frozen to pay her $17,000 debt for tax years 1991, 1992 and 1993! This came out of the blue.
I saw the exact opposite with a customer in New York. Who is receiving bills from California for debts incurred in 1997 and 1998.
Another customer of mine in California - just received a wage levy from North Carolina for a tax year in which he didn't live in North Carolina. Apparently, North Carolina considered him a resident for 2006 and charged him a large balance by filing the return for him.
Exempting bankruptcy court, you are going to see a few different resolutions with these States:
1. Offer in Compromise - showing your inability to pay them in full and settling for a fraction of what you owe.
2. Hardship status - you might be able to show them that you CAN'T pay and have the case closed as "uncollectible" - however this is not as easy to achieve as it is with the IRS.
3. Payment plan and penalty abatement - setting up a payment agreement that you can afford and then petitioning them to waive penalties.
4. Full payment and penalty abatement - writing out a check for the original tax plus some interest and showing them that you had good reason to fall behind.
5. Correcting the tax return - in the example above - my client is going to prove to the state of NC that he didn't live there and get his balance due reversed.