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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
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Experience:  Extensive Experience with Tax, Financial & Estate Issues
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If a partnership (LLC) does business in states other than the

Customer Question

If a partnership (LLC) does business in states other than the state in which it is organized does the income need to be apportioned for each partners K-1 based on the state in which in the income was earned?

The states the partnership is operating in are not the state of residence for the partners.
Submitted: 7 years ago.
Category: Tax
Expert:  Stephen G. replied 7 years ago.

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.


Yes. I've done it many times. The partners will have to file non-resident returns in those states, assuming that they meet the income requirements.


It can get complicated, depending upon the states. The best way to do it is if one person does the whole package with tax software; of course, that may not be practical in your circumstances.


Many CPAs have software that feeds the right numbers into the right state returns once the federal 1065 and the Company's home state return is done.


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Customer: replied 7 years ago.

Thanks for the informaiton Stephen.


All income from partnership is earned in Florida. There is no filing requirement there for the partnership. One of the partners is a resident of Kansas. Is the income attributable to him considered earned in Florida for tax purposes (this is true) and not taxable on his Kansas return? Or does the lack of income tax in Florida keep this income as taxable on his Kansas return. He is an active partner.

Expert:  Stephen G. replied 7 years ago.


site is not working correctly will try later

Edited by Stephen E. Grizey, CPA on 4/3/2010 at 2:01 PM EST
Expert:  Stephen G. replied 7 years ago.


In terms of the state reporting, if there's no return to file, that's the end of the story.


What happens is that Kansas will pick up the federal numbers from his federal return and that's what will form the basis of his Kansas return.


Generally, income earned by a non-resident is primarily taxable (as a non-resident) in the state where it is earned; then the resident state will give its' resident credit for the taxes paid to another state; in the "other" state has no income tax then there's no credit and the income generally gets taxable in the home state. Kansas in this example.

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Customer: replied 7 years ago.

Thanks Stephen ... you have been very helpful.


Does it make a difference if the partners work 100% from home and not physically in the foreign state? It seems like the income would follow them to Kansas and not be taxed in the other state where the funds originated from.

Expert:  Stephen G. replied 7 years ago.


Sure, but look at your original question.


The state where the work is actually performed, is the primary state that is owed the tax.


So in the case of a Kansas resident, it makes no difference if the operating partnership is in Florida. If he worked in Florida, since there's no tax in Florida, the tax goes to Kansas.


If he works in Kansas, he pays the tax to Kansas anyway.


Where it could get tricky in this telecommuting world would be if the Partnership had a job in a state were there was an income tax, but the work was done in Kansas via telecommunications; would the state where the Partnership was working have a claim on the employee's income who was performing his services in Kansas?


I would guess that there would be different results in different states. Generally, it has always been that the state where the actual work was performed had first claim on the income. In this situation, Kansas; but would the partnership have to withhold state income taxes for a state where they had no clients, no office?


Probably, if the employee's workplace could be considered a Partnership situs, since a Patnership employee was working there.


Would the partners be treated the same way; I really don't know.