Need Ohio and Missouri Tax Advice

[Maria]

Hello,

I am preparing this S corp. return. The client has been pushing us and we had to promise to mail out the K-1s on Monday but we still can't figure out the two state returns.

This is a California S Corp owning rental properties in 5 different states. During 2007, they did a major 1031 exchange which acquired rental properties in Ohio and Missouri. I have the prosystem generate Ohio FT-1120S and Missouri MO-1120S, both have zero tax due. However, there are two other form Ohio IT-1140 (tax due $6500) generated and MO-1NR (tax due $7,500), do I have to generate these two forms? Those are withholding tax for the S corp. shareholders(8 of them, all CA residents with no other OH or MO income). The rental net income from MO was $62,000 and from OH was $37,000. Also, it seems I can file IT-4708 for OH so that each shareholder doesn't need to file their own OH tax return, but tax due is in the $8,000. I am just total confused.

Thanks in advance for your help.

[BOB W]

I'm just bringing your post back to the top. This seems to be important to you.

[Maria]

Thanks

We are still trying but thinking not the right answer, we are doing appointment/allocation and the tax due for that two states decreases.

[Nashville]

A little help

...but one issue at a time. If the corporation is domiciled in CA, and is a sub S, then it will be a sub S in all states which honor sub S status. It appears OH and MO honor the sub S, so only the 1120S version is deliverable.

Under this scenario, K-1 allocations to shareholders create a filing requirement for these shareholders to file non-resident personal returns in OH and MO, provided they exceed the income thresholds for filing. This requirement can be waived if the domiciled corporation pays these states "composite" payments on behalf of their shareholders. The purpose of a "composite" payment is to pay the foreign state in exchange for relieving the stockholders from having to file in those states. A composite payment is not required, but is often paid in order to keep shareholders from having to file returns in those states on trivial amounts of income.

When elected, a composite payment is a win-win for everyone. Stockholders don't have to file, the states get their money and don't have to process lots of trivial returns. There is, however, a downside -- most composite payments are made at the highest tax bracket, so if there is significant allocation of income to a given state, the price of convenience can be heavy.

I don't know why your software would print a C-corp version as well as a S-corp version. Only one return is required. It might be that MO and OH give the corporation an option to file as a C-corp even if CA is an S-corp.