For my S Corp filing I noticed on the California Accumulated Adjustments Account (Schedule M2 of Form 100S) that "State Tax Refund" is added as an adjustment in line 3 automatically. Line 2 (Ordinary Income), however, already includes the state tax refund (1.5% CA Franchise Tax refund for overpayment) which flows automatically from Federal From 1120S. This refund is listed under "Other Income" on the federal form and it has its own line item on the Other Income Worksheet ("State Tax Refund") so it seems like it should be there. Ultimately this results in the retained earnings on the state Schedule M2 being higher than the equivalent Federal number by the amount of the State Tax Refund (since it is being double counted). Should this line item in the State Schedule M-2 be overridden or should it not appear differently (or not at all!) in the federal filing for some reason? Appreciate your input.
