When you or your company holds a partnership interest in a partnership, that interest can create nexus (a taxable presence) in a state for you or your company. Even if that is your only connection with the state. Other details that come into play are - what type of partnership is it? A general or limited partnership? An investment partnership? What type of partner are you? A general or limited partner? Does your company have any other connections with the state besides holding the partnership interest?
Generally speaking, in most states, holding a general partnership interest in a general partnership will give you (as the general partner) nexus in the state, even if that is your only connection with the state. On the flip side, generally speaking, in most states, holding a limited partnership interest in a limited partnership may NOT give you (as a limited partner) nexus in the state, if that is your only connection with the state. (When dealing with this issue, please consult a qualified state tax professional and the state's specific statutes, cases, and rulings for guidance.)
Question: If your company is currently protected from having nexus in a state due to P.L. 86-272, but your company also owns a limited partnership interest in a limited partnership, does your company have nexus in that state?
Answer: Obviously, it depends on the state and it's specific statutes. However, I have found a state that says holding a limited partnership interest creates nexus for the limited partner. So, if we accept that, then the partner has nexus. However, when the partner files its state return, should it be required to include its own in-state gross receipts (that were protected by P.L. 86-272) in the numerator of the apportionment factor along with its share of the partnership's in-state gross receipts?
It isn't clear that they should be. I think an argument can be made to exclude the partner's own in-state gross receipts from the numerator, but will the state agree? We'll see.
Obviously, the argument and position I am describing depends on the facts of each case and the statutes of each state. Therefore, the above description and scenario may NOT apply to your company's situation. Please consult a qualified state tax professional before taking a position.
I just wanted to throw this issue and possible solution out for discussion.
Let me know what you think.