To exempt a non-resident partner from the Iowa PTE-C composite tax requirement (because they will file their own Iowa return), you must use Exemption Code "D" (or in some systems, "Nonresident Member Composite Agreement") on the IA PTE-C Nonresident Member Schedule.
This tells the state that the partner has signed a Nonresident Member Composite Agreement (Form 41-175) to file their own Iowa taxes. This means the partnership no longer has to pay tax on their behalf.
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