We periodically get the question from clubs who have members in multiple states: "How do we know whether we have to file in more than one state". ICLUB President Doug Gerlach breaks down the scenarios a club might run into, depending on what state the club is located in:
While all partnerships are required to complete a federal IRS tax return each year, state regulations regarding partnership tax returns are very different. If you have the choice to locate your club in a state that is more tax-friendly, you can greatly simplify your annual tax return filings by registering there.
1. IF you have any members in the following 8 states, THEN the club MUST make a state tax filing in those states REGARDLESS of where the club is officially located. So, if you have 1 or more members in Pennsylvania, and none in any other states, then it makes sense to just have one of the Pennsylvania members use their home address for the official club location. Since you have to file in the state anyway, it doesn’t make sense to locate anywhere else, especially if you can avoid making multiple state filings in a year. If you have members in NJ, NY, and PA for example, your club will have to file 3 state tax returns (at least) each year.
2. IF your club is in the following state and has any members who DO NOT live in the state, THEN the club MUST make a state tax filing to report information specifically about the non-resident partners.
3. IF you have no members in the 8 states that require filing for any resident member, BUT you have members in any of the following states that do NOT require partnerships or investment clubs to file an annual tax return, THEN definitely try to locate your club there. This way the club will not have to file an annual state tax return at all. (Just remember that if your partnership has partners in the states in #1, it will have to file in those states even if the club is located in one of the following states.)
4. IF you can’t locate in a state that allows you to avoid filing a state tax return, THEN definitely choose one of the following states so that you won’t have to complete your state tax filing by hand or pay a professional tax preparer. The following states require partnerships to file annual tax returns AND are supported by our Club Tax State software. (Note that we support all of the states in #1 above with the Club Tax State software except West Virginia.)
5. IF you register in one of the following states, THEN you will have to complete your state tax filing by hand or pay a professional tax preparer, so they are highly unrecommended. These states require state tax filings for partnerships located in their states, BUT we do not support the state tax filings in myICLUB (because there are so relatively few clubs in those states). Note that if your partnership has members in any of these states (except WV) BUT is officially located in another state, the club will not have to make a tax filing just for those resident partners. And if your partnership has partners in the states in #1, it will have to file in those states as well as the state of the club’s official location.
State regulations and tax laws change regularly. Please verify your state’s current partnership tax requirements before making a final decision on your club’s organization.
Finally: If a club has to make more than one state filing, the club will need to purchase a separate Club Tax State software for an additional (reduced) charge. Most treasurers would rather not do unnecessary tax preparation work, though, so keeping the number of state filings to the absolute minimum is a good idea.
Last Updated 11/27/2024
