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Thirty-eight states and the District of Columbia allow pass-through entities to make an election to file composite returns. However, Alabama, Connecticut, Indiana and Louisiana require pass-through entities to file a composite return for nonresident members. Nebraska, Oklahoma, Tennessee, Utah, and the District of Columbia do not accept composite returns at all.
While composite returns are mostly elective, withholding the tax these nonresidents may owe is generally not. Only 4 states require pass-through entities to file a composite return for nonresident members, but 37 states require that pass-through entities withhold income from nonresident entity members, although many states offer exemptions or only require withholding past a certain threshold.
Luckily, some states allow pass-through entities to file composite returns as an alternative to withholding taxes for nonresident members. This cuts down on the administrative burden of managing the tax liabilities of nonresident members.
See the chart below for further information on where the states stand on composite returns and withholding.
By Melissa Fernley
Follow us on Twitter at @BBNATax
Join BNA's State Tax Group on LinkedIn here .
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States Requiring Composite Returns
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States Requiring Withholding
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States Requiring Neither Composite Returns Nor Withholding |
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Alabama Connecticut Indiana Louisiana |
Alabama Arkansas California Colorado Connecticut Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana New Jersey New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina Utah Vermont Virginia West Virginia Wisconsin |
Alaska Arizona Delaware District of Columbia Florida Nebraska New Hampshire New Mexico Tennessee Texas
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