Holding Company LLC with subsidiary LLC

[Navtex]

I have a Texas Holding Company LLC (partnership) that solely owns an Alabama subsidiary LLC which owns rental properties in Alabama.  My understanding is that all income/expenses flow up to the Holding Company LLC.  When Turbo Tax Business asks me which state(s) the Holding Company does business in, do I only specify Texas, Alabama or both?

[RobertB4444 · Accepted solution]

If you are doing one tax return to cover the Texas holding company as well as the subsidiary then you need to include all of the states that you and the subsidiary do business in.  In your case that includes Alabama.

@Navtex 

[Navtex]

Thank you!

[Navtex]

@RobertB4444

Let me preface this question by admitting that this is the first year I've owned this type of business structure and the first time filing a business return.  It's definitely not for the faint of heart. :(
My Texas holding company is a partnership with my wife and I.  As I mentioned before, the subsidiary Alabama LLC is a single member LLC with the Texas Holding LLC owning 100%.  Turbo Tax Business is now wanting to file an Alabama Partnership return, which is in line with what you said.  In the Federal Return I reference all income and expenses as belonging to the Holding Company LLC, correct?  Do I need to continue to reference the Texas Holding LLC in the Alabama Partnership return?  It's a tad confusing.

[RobertB4444]

The subsidiary LLC in Alabama needs to meet all of it's state filing requirements regardless of who owns it.  The same is true of the Texas parent company.  

So you will file an Alabama partnership return detailing the activities that occur in Alabama.  That should end your obligations to Alabama.

Your Texas franchise tax return has a space to put in the total income earned in Texas and the total income earned outside of Texas.  Keeps you from being double taxed in Texas and Alabama.

@Navtex 

[token1]

If Alabama LLC is own 100% by Texas Parent LLC, then is a single member LLC, why it has to file Alabama partnership? 

[AmyC]

The AL income must be accounted for on the partnership return. The partnership return will generate K-1 forms. You would not want to file your personal tax return with the K-1 then add the income a second time (on the single member) for AL to double tax.