S Corporation returns
I agree with Bees Knees; a state S Corporation return (including K-1s) is prepared according to that state's rules. So, in your example, your Alabama S Corporation return (including K-1s) is prepared using Alabama rules. If the S Corporation is required to file returns in other states, those state returns are filed using rules for each specific state.
Each shareholder would then file any required individual state returns according to the rules for each specific state. Alabama residents would be required to report income from the Alabama K-1 on their individual Alabama resident return and Alabama nonresidents would be require to report income from the Alabama K-1 on their individual Alabama nonresident return.
Because Alabama residents are not required to report income from an Alabama S Corporation that is allocable to outside Alabama, the Alabama residents would not be entitled to a credit for income tax paid to another state.
The shareholders that are not Alabama residents, however, must follow the rules for their state of residency and would be allowed to claim a credit for income tax paid to another state if the S Corporation income was required to be reported on both their state individual resident return and on the Alabama individual nonresident return.
I agree with Bees Knees; a state S Corporation return (including K-1s) is prepared according to that state's rules. So, in your example, your Alabama S Corporation return (including K-1s) is prepared using Alabama rules. If the S Corporation is required to file returns in other states, those state returns are filed using rules for each specific state.
Each shareholder would then file any required individual state returns according to the rules for each specific state. Alabama residents would be required to report income from the Alabama K-1 on their individual Alabama resident return and Alabama nonresidents would be require to report income from the Alabama K-1 on their individual Alabama nonresident return.
Because Alabama residents are not required to report income from an Alabama S Corporation that is allocable to outside Alabama, the Alabama residents would not be entitled to a credit for income tax paid to another state.
The shareholders that are not Alabama residents, however, must follow the rules for their state of residency and would be allowed to claim a credit for income tax paid to another state if the S Corporation income was required to be reported on both their state individual resident return and on the Alabama individual nonresident return.
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