When assessing annual compliance obligations, tax preparers and partnerships must consider numerous factors, including the increasingly complex realm of state and local requirements. State filing obligations for partnerships are generally triggered by the partnership’s location, the presence of state-sourced income through direct or underlying trade or business activities, real or tangible assets in the state, or the residency of the partners.
Typically, investment partnerships do not generate state-sourced income as their operations are primarily limited to investing in intangible assets such as stocks and securities. Most states do not regard the mere ownership of intangible property and the associated receipt of income (e.g., interest, dividends, capital gains) as constituting business activity within the state. Consequently, such income is commonly sourced to the partner’s state of residence rather than to the state where the partnership is domiciled or where its investments are managed.
While state-sourced income can be uncommon among investment partnerships, it remains important to note that the residency of partners alone can result in state filing obligations for the partnership. States such as Georgia, Indiana, Missouri, New Jersey, New York, Oregon, Pennsylvania, and West Virginia impose residency-based filing requirements. In these cases, the partnership is required to file a return; furthermore, Indiana, New Jersey, New York, and Pennsylvania will generate state K-1s for all partners, regardless of their residency. The receipt of a state-issued K-1 is generally informational and does not typically obligate a non-resident partner to file in that state.
For illustration, suppose investment partnership X is based in Colorado, with three individual partners (A, B, and C) residing in Colorado, Georgia, and New York respectively. Partnership X will file a DR 0106 in Colorado due to its location of the partnership, a Form 700 in Georgia, and an IT-204 in New York corresponding to the residencies of partners B and C. Additionally, each partner will receive a New York IT-204-IP irrespective of their residency status.
In summary, state filing responsibilities for partnerships are principally guided by the location of the partnership, the nature of its income sources, and the residency of its partners. It is essential for tax professionals and partnerships to diligently review both state-specific regulations and partner residency considerations to achieve full compliance. A thorough understanding of these complexities enables partnerships to manage their compliance obligations efficiently and accurately across multiple jurisdictions.
For specific guidance on your fund’s tax compliance, please reach out to your Richey May tax professional. To learn more about these best practices and how Richey May can help you navigate filing obligations, reach out to Steve Vlasak, Business Development Partner, Alternative Investments Practice.
Georgia
Partnerships must file Form 700 when they (i) conduct business or own property in Georgia, (ii) earn Georgia-source income, or (iii) have one or more Georgia-resident partners. Georgia K-1 equivalents are not generated for resident partner filings.
Indiana
Partnerships must file a Form IT-65 when they (1) doing business in Indiana; (2) that has a partner who is an Indiana resident; or (3) has income from Indiana sources must file an income tax return.
Missouri
A partnership is required to file Form MO-1065 if it is required to file a federal Form 1065 and either (i) has a Missouri resident partner or (ii) derives income from Missouri sources. Missouri K-1s are not generated for partner filings.
New Jersey
Partnerships with New Jersey-source income or resident partners must file Form NJ-1065. New Jersey K-1s are generated for all partners in the fund regardless of residency.
New York
A partnership must file Form IT-204 if it has (i) New York-source income or (ii) New York resident partners (individuals, estate or trust). Corporate or pass-through entities that are based in New York do not trigger a filing requirement. New York K-1s are generated for all partners regardless of residency.
Oregon
Partnerships with Oregon-source income or Oregon-resident partners are required to file an Oregon partnership return and comply with nonresident withholding requirements. Oregon K-1s are not generated for partner filings.
Pennsylvania
All partnerships with Pennsylvania-source income or with Pennsylvania-resident partners must file Form PA-20S/PA-65. Pennsylvania K-1s are generated for all partners regardless of residency.
West Virginia
Partnerships with West Virginia-source income or partners subject to West Virginia tax must file the appropriate pass-through entity return. West Virginia K-1s are not generated for partner filings.
