South Carolina - Received K-1 for small taxable income, tax withheld already - do I need to file SC NR return

[akf3]

I'm reading the SC filing requirement for a non-resident and I am still confused.   As a Non-Resident of South Carolina (I'm a California resident), I received a K-1 with:

• $357 taxable income  
• $18 tax was already withheld on the $357 income, as a non-resident partner
• Also have ~$14K of Ordinary Business Loss and Net Real Estate Income Loss 

I see that $357 income is way below the SC standard deduction.

Do I need to still file a SC state NR income tax return?  thanks.

[SundayInSalem]

South Carolina does not have a minimum filing requirement so you are obligated to file a state income tax return.

South Carolina says:

A nonresident individual receiving South Carolina income from wages, rental property, businesses, or other investments in South Carolina, must file an SC1040 South Carolina Individual Income Tax Return and Schedule NR Nonresident Schedule. 
See Code Sections 12-6-1720 and 12-6-2220.

Additionally your question is unclear about whether the business and rental losses are South Carolina-based. If so, filing a state return will record your net operating loss for state tax purposes.

See: SC TECHNICAL ADVICE MEMORANDUM #87-6

[akf3]

Thank you very much - also for pointing me to the specific section of the Code and memorandum.

To clarify, I am referring to SC-sourced income of $357 of which $18 SC tax was already withheld and paid on my behalf by the partnership.   So the SC tax was already paid - but do I still have to file as a NR? 

Its just a matter of paying for another state tax form and filing, but given that SC state tax was already withheld and paid, and the overall income amount is small, what is the worst that can happen if I did not file.  Thanks

[SundayInSalem]

You are supposed to file a SC return. However, the filing and payment penalties are based on unpaid tax. If you have a refund, there would be no penalty assessed for not filing. You would eventually lose your right to claim any refund.

See line 32 and 33 of SC1040 INSTRUCTIONS 2020.

[akf3]

I understand that posts in a forum such as this do not constitute tax advice.

However, I found this prior discussion that addresses my question: https://ttlc.intuit.com/community/business-taxes/discussion/re-partnership-lp-with-k-1-from-out-of-s...

Specifically,

"Many (most?) partnerships are like yours, where partners reside in states other than where the business is located. Often, the tax partner (or general partner) will pay any local state tax liability on behalf of the out-of-state partners, but not always. When these payments are madd, out-of-state partners often choose not to file a return in the state where the business operates."

Then the next post discusses composite return and whether it was filed or not by the partnership on partners behalf.   My understanding in my situation is that a composite return was NOT filed, but the partnership withheld state tax for SC non-residents.  So as a partner who had SC state tax withheld, can I choose not to file the SC return?

[SundayInSalem]

A partnership withholding income tax on your behalf is the same as an employer withholding tax. Withholding and filing are two different things. You have not filed a return unless you actually file a return.

South Carolina says: "A nonresident individual receiving South Carolina income from wages, rental property, businesses, or other investments in South Carolina, must file an SC1040 South Carolina Individual Income Tax Return and Schedule NR Nonresident Schedule."

The penalties for non- or late filing and/or non- or late payment are based on unpaid tax. If you have withholding, you may not owe any SC tax, in which case SC will not care whether you file a return or not. 

If you are using the online version of TurboTax you can prepare a nonresident return and see whether you owe. If you do not owe, you can delete the return and pay nothing for state.

If you owe a minimal amount, you can choose not to file. Generally states have a threshold where it is not worth their time and effort to collect small amounts of tax due. That does not mean you are forgiven for not filing.

However if you continue to receive SC income every year and have unpaid tax every year, at some point you will probably get audited and asked to file past returns and pay tax plus penalty and interest.