State tax filing

If you end up as a solo owner, then the business profits go on Schedule C on your personal tax return (Form 1040), so any refund will be seized by the IRS.

I suggest that you and your partner visit a local professional to set this all up correctly: legally, financially and taxwise. For example, any business loans you apply for may also require your personal guaranty, and past due personal taxes could negatively impact this. If you are married and live in a Community Property State, there are special considerations as well.