S-Corp K-i's for states

[taxtimes2@aol.com]

Just received a tax package from a new client. They have ownership in an S-Corp that operates in more than one state.
Line one on his K-1 (Federal) is $79,000. Line one on the GA (Home state for the corp) is $79,000 Line one on the other state is $26,000. The accountants for the corp are in Nevada(???) and are not responding.

Could this be correct? Shouldn't Ordinary income - Line one for the states total to the amount of the Federal K-1 Line 1?

[kathyc2]

I would say the K-1's are correct. Looking briefly at GA laws, it appears they are a state that handles multi-state income through a credit rather than apportionment. In other words, a GA resident would be taxed on all income received while a resident regardless of source, but then they would also have a credit for income paid to other state(s).

[taxmom34]

I see it the same way as Kathyc2.

[Nashville]

Multistate Compact

There are various agreements (compacts) between states. One of them has to do with K-1 income to recipients. This compact requires reporting for the home state recipient to only report the income allocated to that state, but denies any associated credit for "taxes paid to other states." Alabama is a signatory to this compact, meaning an Alabama K-1 would show only the income allocated to Alabama on Line 1. The Alabama resident would report only that income, but would not be entitled to take the "credit for taxes paid to other states" which would otherwise result.

Georgia apparently is NOT a signatory to this compact. A Georgia K-1 would show TOTAL income on Line 1, irrespective of state. The Georgia resident would then claim ALL the income on the K-1, but would be able to take credit for "taxes paid to other states."

At first glance this seems like very little difference, or a "wash". However, taking the credit for taxes paid to other states can be grisly, usually has a ceiling equal to the resident state taxation rates on the subject income, and is messy to file. I believe in every case the shareholder would benefit more by having his state agree to the compact.