For individual income tax filing purposes, several states allow certain entities to file composite income tax returns on behalf of some or all of the filing entity's nonresident individuals. This type of return is generally a single income tax return which reflects the aggregate income and tax liabilities of the participating members. Partnerships or S corporations are generally the type of entities that can file a composite income tax return.
Some states also allow trusts to file such returns.
When an Arizona resident individual is a participating member in the filing of a composite income tax return with another state, that individual will generally not file his or her own separate income tax return with that state. The participating member's income and tax liability will be reflected in the aggregate amounts reported on the composite return. Therefore, even though the participating member does not file a separate nonresident individual income tax return with the other state, he or she will generally have paid income taxes to both that state and Arizona on income derived from the entity filing the composite return. A resident individual who participates in the filing of a composite income tax return to another state is entitled to claim a tax credit for taxes paid to the other state, providing all of the requirements of A.R.S. 43-1071 are met and the tax paid to the other state is paid directly by the individual . The credit is not allowed when the taxes are paid by the entity on behalf of the participating member.