Does a CA resident partnership that receives a AZ partnership K-1 with ordinary income have to file a AZ return?

Question

It seems that the Ca partnership would need to pass the AZ k-1 income down to its Ca partners who would then need to file non-resident individual  tax return in AZ. It seems all the apportionment rules relate to partnerships doing business in multiple states. I wonder if a AZ k-1 received by a CA partnership just gets reported to CA like interest and dividend and not reported in AZ?

Maurice Mandel II · Answer

Basically your question is whether a California resident has income in Arizona from profits distributed as shown in a K-1 tax form.  First, this is a very specific question and this particular forum for general legal advice is not the place to get legal advice to rely on.  Even from me.  Your question indicates that you are not in California but in Arizona, if you are a resident of AZ you have to file an AZ income tax return.  I am not a tax specialist so I disclaim any expertise with the following response: most investments are subject to state taxes based on the jurisdiction of the recipient- Morgan Stanly is based in New York, but you don't pay New York state taxes on distributions you hold with MS, you pay state taxes from the jurisdiction you reside in.  A K-1 from a limited partnership is subject to additional rules, and depending on what the status of the partnership is, this answer could vary.  You have not provided sufficient information. You need to consult with a tax attorney in the jurisdiction in which you reside for proper advice. You need to consult an attorney in your local area that practices this kind of law. Thank you for using Justia Ask a Lawyer.

James L. Arrasmith · Answer

When a California resident partnership receives an Arizona partnership K-1 with ordinary income, it is generally necessary to report that income on the California partnership return. California follows a source-based income allocation method, which means that income is allocated based on where the partnership is doing business. Since the partnership is a resident of California, the income would typically be apportioned and reported on the California partnership return. The individual partners of the California partnership may then need to report their share of the partnership income on their non-resident tax returns in Arizona, depending on their individual tax obligations. It is advisable to consult with a tax professional or accountant who can provide specific guidance based on the details of your situation to ensure compliance with the tax laws of both California and Arizona.

Q: Does a CA resident partnership that receives a AZ partnership K-1 with ordinary income have to file a AZ return?