Non-resident OK income not showing up on OK return

[SusanEBratt]

I am retired, married filing separate, and over 65. I am taxed as a full-year resident in Maryland. I also have a small amount of income from mineral rights royalties in Oklahoma. On Schedule E, the address listed for this income is Oklahoma, and this shows up as Oklahoma income in the "Other State Income" section of TurboTax. 

However, when TurboTax generates my state returns, the Oklahoma Nonresident/Part Year Income Tax Return (Form 511-NR 2025) has an X in the box that says "Not required to file - Place an X in this box if you are a nonresident whose gross income from Oklahoma sources is less than $1000" -- even though I received more than $1000. The amount I received doesn't show up on the OK state return forms anywhere -- the form is basically blank, other than fully refunding me the small amount that OK withheld in state taxes.

Whereas in previous years, Maryland and Oklahoma each taxed me on that portion of my income generated within each of their states, this year it looks like all my income is counted as Maryland income, including the Oklahoma mineral rights income.

Is this correct? It doesn't look right to me and I'm afraid to file it like this without understanding why. Thank you for any insight you can offer.

[MaryK4]

Oklahoma offers an optional depletion deduction that is often more favorable than the federal version.  TurboTax computes the Oklahoma depletion at 22% of the gross income derived from each Oklahoma property during the taxable year- this may have put you under the $1,000 filing threshold.  You can check by subtracting 22% of the total you received.

You would still be required to report the income to your resident state Maryland; and if there is no Oklahoma tax, you would not have a credit to apply so it would be taxable in Maryland.  Maryland also uses the federal amount without the additional depletion allowance.

If this is NOT the case, please post again and we can investigate further!  

[SusanEBratt]

Hi, thanks. Unfortunately that wouldn't account for the apparent discrepancy. The total amount is $5730, so subtracting out 22 percent would still leave me with around $4470 taxable, if I'm doing the math correctly. I appreciate your help!

[RobertB4444]

You're doing the math correctly!

Let's go back to the 1099-MISC that you received from your Oklahoma source.  When you entered that 1099 into TurboTax did you make certain to fill in boxes 16, 17 and 18?  If any of that information is missing then the system will not carry the full amount over to the Oklahoma return.

[SusanEBratt]

Yes, boxes 16, 17, and 18 are all filled in with the information from the 1099-MISC.  On the screen where it asks if this is a Qualified Business Income, I selected "no" as the instructions were as clear as mud and this income didn't seem to fit any of the examples listed. Might that be the problem? 

[SusanEBratt]

I went back and checked the return from last year, and I also checked "no" for whether this was Qualified Business Income, so I don't think that's the problem.

[AmyC · Accepted solution]

It does not sound like Qualified Business Income as you seem passive in the activity, living in MD. Let's go through this step by step:

1. Enter the rental/ royalty section
2. Is this a rental or royalty?
3. Select Royalty  -check that  the royalty address shows Oklahoma. 
4. You enter the 1099, it shows OK.
5. Go to OK - which must be completed before MD
6. Go through all the questions
7. If the income is showing up correctly on the tax return with appropriate depletion and deductions, great. The goal is to pay the correct tax on the correct income. The state will be able to see the amounts and know that a checkbox is wrong.
8. Go to MD and claim the credit for tax paid to OK on the same income. The credit will be the lower of the state tax liabilities on the same gross income. You may owe your resident state,  if they have a higher tax rate along with differences in how the taxable income is calculated.

OK has a filing requirement when your OK source income is $1,000 or more. The checkbox is letting OK know you don't need to file a return. By filing a return with the correct information, the checkbox becomes rather unimportant.

If you are using the desktop software, you can switch to Forms mode and check/un- check  the box. If you are online, I repeat, the state wants the correct income and tax. The check box isn't relevant since you are filing.

[SusanEBratt]

Thank you for your detailed reply.  I think this was a sequencing issue, as I had done Maryland before Oklahoma. I deleted the entire return and did it from scratch, this time doing Oklahoma first, and now the state return is showing numbers on it and the "not required to file" box is no longer checked.  I think this solves my problem. THANK YOU! I would never have guessed that sequencing the states would make a difference. I appreciate your help and your patience.