Schedule K-1 Filing

Yes, it depends on your specific income levels, but you will likely need to file in both states. 

As a New Mexico resident, you are taxed on your worldwide income, including the share of partnership income reported on your Schedule K-1. Because the partnership is in California, that income is considered "California-sourced," and California requires non-residents to file a tax return (Form 540NR) if their income from California sources exceeds certain thresholds based on age, filing status, and number of dependents.  See this CA chart for more details: California Filing Requirements.

To avoid being taxed twice on the same money, your income should be allocated between the states on Schedule PIT-B and you can claim a Credit for Taxes Paid to Another State on your New Mexico return for the income taxed by California.

Per New Mexico Taxation & Revenue Individual Tax Return FAQ's:

I have income from both inside and outside New Mexico. Are there special forms that I must file?

 

Residents with income or losses outside New Mexico from rents and royalties, gains or losses from the sale or exchange of property, income or losses from pass-through entities, or other types of income not included in lines 1-6 and lines 8 and 9 of the Form PIT-B, New Mexico Allocation and Apportionment of Income Schedule must use the Form PIT-B, New Mexico Allocation and Apportionment of Income Schedule. The Form PIT-B, New Mexico Allocation and Apportionment of Income Schedule separates New Mexico income so tax liabilities can be distributed appropriately. If using a PIT-B, and you will be claiming the credit for taxes paid credit, include a complete copy of the other state’s tax return.

 

In certain circumstances, you may be eligible for a credit for taxes paid to another state. if you are required to allocate income to New Mexico because you are a resident but have been taxed by another state on that same income. See the Form PIT-1, New Mexico Personal Income Tax Return for more information on this credit.