Composite Tax Return Question

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Topic Author
subdude
Posts: 4
Joined: Thu Oct 11, 2018 3:47 am

Composite Tax Return Question

Post by subdude » Sun Apr 14, 2019 11:51 pm

I'm part of a real estate investment partnership that has filed a composite tax return in California, at the highest marginal tax rate (13.3%). Can an individual still file a return even if they've participated in a composite return for the state? If I file individually, it will allow me (a nonresident) to recapture some of the rate differential between the top rate (13.3%) used by the composite return, and my own rate that will be lower.

Can I just file an individual return, showing the composite tax payment (made on my behalf) as my tax payment, and request a refund? Does California allow that? Any thoughts? Additional note: this income is my only California income.

Topic Author
subdude
Posts: 4
Joined: Thu Oct 11, 2018 3:47 am

Re: Composite Tax Return Question

Post by subdude » Tue Apr 16, 2019 3:26 pm

After some research, I'll answer my own question....

California FTB Pub 1067 says :

A California nonresident individual who is included in a composite filing may not subsequently file a California nonresident return for that same taxable year, UNLESS he later discovers that he did not qualify to be included in the composite filing because of other/additional CA income; then that individual may file a nonresident California return to report all sources of California income. Also, once you've elected to be included in the composite return, it's irrevocable for that tax year.

This is annoying, because my tax bite will be twice what it would be if I'd individually filed. At lease I'll avoid the onerous CA filing. Of all the states I've filed in (due to extensive regional investments), CA is the most difficult, followed by NY. Both require a nonresident to declare all income from all sources (not just state sourced income). Very invasive. The complexity and difficulty of the CA and NY returns are what made me elect to be included in the partnerships composite return, although I pay a heavy price for it. If you elect the composite return, you don't have to include all sources of income, only the state sourced income. States usually tax composite income at the highest marginal tax rate for the state. In CA that's 13.3%. Ouch!

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