Lingering State Reporting Duty?

[Corduroy Frog]

Wade through the pond with me on this if you have the time and inclination.

This could apply to any foreign state, so I'll just pick on Arkansas. Fryingpan, Inc. is headquartered in Iowa but there is nothing peculiar about either state to invoke anything out of the ordinary to the scenario.

Fryingpan is a contractor operating in several states, and operates in Arkansas from 2006-2010. Corporation faithfully reports and pays Arkansas 1)Income tax based on a state apportionment formula and 2)Annual fee of $150 added to the state income tax just for the privilege of doing business in Arkansas.

Fryingpan recognizes income on a percentage-of-completion basis for its contracts in all locations. However, after shutting down its Arkansas operation in 2010 there are unresolved issues and potential settlements forthcoming against the Arkansas customer. The issues are not reasonably assured, thus no further percentage of completion revenue has been recognized.

Accordingly, Fryingpan has not filed any Arkansas corporate taxes for 2011 and 2012.

Now it is 2013, and YOU are the tax preparer for Fryingpan. The Fryingpan reaches a settlement of $75,000 from its former Arkansas customer (which the corporation has never before recognized as revenue.)

The Arkansas apportionment formula contains SALES, PROPERTY, and PAYROLL. Even though Fryingpan has shut down its operation and has no payroll or property remaining, the $75,000 qualifies as a sale attributable to Arkansas.

What is your client's duty to report and pay (if need be)?

A. An Arkansas Corporate Income Tax Return
B. The $150 Annual Fee for doing business in Arkansas
C. Both of the above
D. Neither of the above

[Corduroy Frog]

Try Again

I would be interested in responses to this thread, but sometimes I have difficulty presenting a readable question because I fail to cleanse cumbersome phraseology. I've had this difficulty with being succinct and it has held me back, professionally, on occasion. Any advice in this regard would be appreciated, as well as any response to the subject.

[ATSMAN]

I will take a shot at it!

If the business was operating in several states and they were filing the required state returns. if the source of the income was from that state that you previously never filed you must now file.

I will give you a real example that happened to my client. He was let go from a job (He claimed racial discrimination, owner claimed performance issue) The job was in the state next to the resident state. He applied for unemployment benefits and was rejected. This matter went up to state labor board and arbitration. 2 years after he initially filed unemployment he gets a lumpsum check. We had to file a non resident state return.