Do I have to file S-Corp return in multiple states?

[alohaTy]

Incorporated in California. One partner moved to Hawaii last year, where payroll taxes, income tax withholding, sales tax etc. have been set up. Other partner remained in CA. Business is a website with customers located throughout the country, including CA and HI.

Does the corporation have to file corporate returns in both states?

In case it matters, we're technically a LLC electing to file as a S-Corp.

[DanielV01 · Accepted solution]

It depends, but probably.  Although the business is formed in California, you would have a filing requirement in Hawaii if you have a business nexus there.  Your business can be considered to have a nexus in Hawaii if it is generating income from Hawaii.

Hawaii will not assess a corporate tax on the business, however, because it follows the Federal treatment of the pass-through nature of the business income.  Your partner/shareholder who lives in Hawaii will be responsible for the Hawaii income tax on the pass-through income on his personal tax return.

For this reason, it is probably a good idea to fulfill a Hawaii return on behalf of this shareholder, especially if his/her income is not California sourced.  It can assist the shareholder to not have to file additional state tax returns on the personal return.