Out-of-state limited partners may be taxed on their partnership incomes, even if they have no other ties to a state.

An Alabama circuit court said in November that a limited partner who lived in Georgia had to pay Alabama income taxes on his income from an investment fund based in Alabama. The taxpayer held an interest in the investment fund as a limited partner. A lower tribunal had concluded the state could not tax the income because the US constitution bars it from taxing anyone with so little “nexus” with the state, but the circuit court disagreed. It said ownership of the partnership interest was enough since this gave the partner a “purposeful connection” with the state. The case is Department of Revenue v. Joe E. Lanzi III.

Keith Martin