Current through Vol. 42, No. 1, September 16, 2024
(a)
General provisions.
Generally, any pass-through entity that makes a distribution to a non-resident
member is required to deduct and withhold Oklahoma income tax from
distributions of taxable income being made with respect to Oklahoma source
income.
(b)
Definitions. The following words and terms, when used in this
Section, shall have the following meaning, unless the context clearly indicates
otherwise:
(1)
"Member" means:
(A) A shareholder of a Subchapter S
Corporation;
(B) A partner in a
general partnership;
(C) A partner
in a limited partnership;
(D) A
partner in a limited liability partnership;
(E) A member of a limited liability company;
or,
(F) A beneficiary of a
trust.
(2)
"Non-resident" means an individual who is not a resident of, or
domiciled in, this state; a business entity which does not have a commercial
domicile in this state; or a trust which is not organized in this state.
(3)
"Pass-through
entity" means:
(A) A corporation that
is treated as a Subchapter S Corporation under the Internal Revenue
Code;
(B) A general
partnership;
(C) A limited
partnership;
(D) A limited
liability partnership;
(E) A trust;
or,
(F) A limited liability company
that is not taxed as a corporation for federal income tax purposes. [68 O.S.
§ 2385.29]
(4)
"Pass-through entity" does not include an entity which is
disregarded for income tax purposes under the Internal Revenue Code.
(c) Subchapter S Corporations;
general, limited, or limited liability partnerships; limited liability
companies. In the case of Subchapter S Corporations; general, limited, or
limited liability partnerships; and limited liability companies, withholding is
required on the Oklahoma portion of the taxable income distributed to each
non-resident memberat the highest Oklahoma marginal individual income tax rate
. In the case of Subchapter S Corporations paying the tax on behalf of
non-resident shareholders (68 O.S. § 2365) or partnerships filing
composite returns on behalf of non-resident partners, the non-resident members
withholding can be claimed on the return filed by the Subchapter S Corporations
or the partnership.
(d)
Trusts. For trusts, withholding is required on the Oklahoma
portion of the taxable income distributed to each beneficiary of the trustat
the highest Oklahoma marginal individual income tax rate.
(e)
Non-resident members not subject to
withholding. The following persons and organizations are not subject to
required withholding by a pass-through entity:
(1) Persons, other than individuals, who are
exempt from federal income tax;
(2)
Organizations granted an exemption under Section 501(c)(3) of the Internal
Revenue Code;
(3) Insurance
companies subject to the Oklahoma gross premium income tax and therefor exempt
from Oklahoma income tax pursuant to 68 O.S. § 2359(c); and
(4) Non-resident members who have submitted a
Nonresident Member Withholding Exemption Affidavit to the pass-through entity
and which pass-through entity has submitted the affidavit information on behalf
of the member to the Tax Commission. In the affidavit, the non-resident member
agrees to be subject to the personal jurisdiction of the Tax Commission in the
courts of this state for the purpose of determining and collecting any Oklahoma
taxes, including estimated tax payments, together with any related interest and
penalties. See (k) of this Section for the procedure to be followed in filing
the affidavit.
(A) For non-resident partners
included in a composite partnership return under OAC
710:50-19-1
and filing a Nonresident Member Withholding Exemption Affidavit, the inclusion
of the partner's income within the composite partnership return will satisfy
the requirements contained in the affidavit.
(B) For non-resident shareholders filing a
Nonresident Member Withholding Exemption Affidavit and electing not to file
Oklahoma income tax returns under 68 O.S. § 2365, inclusion of the
non-resident shareholder's income in the Subchapter S corporate income tax
return will satisfy the requirements contained in the affidavit.
(C) For non-resident beneficiaries included
in a trust return and filing a Nonresident Member Withholding Exemption
Affidavit, the inclusion of the beneficiary's income within the trust return
will satisfy the requirements contained in the affidavit.
(f)
When pass-through
entities are not required to withhold. Withholding is not required in
the following instances:
(1) When an entity
is not required to file a federal income tax return, or properly elects out of
such duty;
(2) When a pass-through
entity is making distributions of income not subject to Oklahoma income
tax;
(3) When a pass-through entity
has withheld tax on royalty interest income pursuant to 68 O.S. § 2385.25
et seq.;
(4) When a pass-through
entity is making distributions to another pass-through entity. Provided
however, the exception set out in this paragraph does not relieve the
lower-tiered pass-through entity from the duty to withhold on distributions it
makes which are not otherwise exempt;
(5) When a pass-through entity is a publicly
traded partnership, as defined by Section 7704(b) of the Internal Revenue Code,
and is treated as a partnership for purposes of the Internal Revenue Code.
Provided the publicly traded partnership has agreed to file an annual
information return reporting the name, address, taxpayer identification number,
and other information requested by the Tax Commission of each unit-holder with
an income in the state in excess of Five Hundred Dollars ($500.00);
or,
(6) When a distribution made by
a pass-through entity has been determined to be not subject to the provisions
of this Section by the Commission.
(7) When a pass-through entity that is
required to file either an Oklahoma partnership income tax return or an
Oklahoma S corporation income tax return makes an election to pay income tax at
the entity level pursuant to the Pass-Through Entity Tax Equity Act of 2019.
[(68 O.S. § 2355.IP-1 et seq.]
(g)
Due dates for payment of
pass-through entity withholding. Pass-through entities that withhold
income tax on distributions of taxable income to non-resident members are
required to remit the amount of tax withheld from each non-resident member on
or before the due date of the pass-through entity's income tax return,
including extensions. Any pass-through entity that can reasonably expect the
total amount of income tax withheld from all non-resident members to exceed
Five Hundred Dollars ($500.00) for the taxable year must make
quarterly estimated tax payments. The Oklahoma Nonresident Distributed Income
Estimated Withholding Tax Report is to be used to remit the quarterly estimated
tax payments. The required estimated tax payments are due on or before the last
day of the month after the end of the calendar quarter and must be made in
equal quarterly installments. The total of the required quarterly estimated tax
payments is the lesser of seventy percent (70%) of the withholding tax that
must be withheld for the current taxable year, or one hundred percent (100%) of
the withholding tax withheld for the previous taxable year. Any pass-through
entity that can reasonably expect the total amount of tax withheld from all
non-resident members to be less than Five Hundred Dollars ($500.00) for the
taxable year may, at their option, make quarterly estimated
tax payments.
(h)
Required
reports. The pass-through entity is required to provide non-resident
members and the Oklahoma Tax Commission an annual written statement showing the
name of the pass-through entity, to whom the distribution was paid, the amount
of taxable income distributed, and the amount of Oklahoma income tax withheld.
Further, the statement must also furnish the non-resident member's name,
address, and social security number or Federal Employer Identification Number.
To accomplish this:
(1) Each pass-through
entity must provide non-resident members with Oklahoma Tax Commission Form
500-B on or before the due date of the pass-through entity's income tax return,
including extensions. Copies of OTC Form 500-B, along with OTC Form 501, must
be sent to the Oklahoma Tax Commission by the same date.
(2) Each pass-through entity must file with
the Oklahoma Tax Commission the appropriate income tax withholding return on or
before the due date of the pass-through entity's income tax return, including
extensions.
(3) Each non-resident
member must enclose a copy of OTC Form 500-B with the Oklahoma income tax
return as verification for this withholding.
(i)
Non-resident members entitled to
credit, or refund, from Oklahoma income taxes paid. Any non-resident
member from whom an amount is withheld pursuant to the provisions of this
Section, and who files an Oklahoma income tax return is entitled to a credit
for the amount withheld. If the amount withheld is greater than the tax due,
the non-resident member will be entitled to a refund of the amount of the
overpayment.
(j)
Pass-through
entities must register. Pass-through entities that make distributions
subject to Oklahoma withholding must register with the Oklahoma Tax
Commission.
(k)
Affidavit
filing procedures. Non-resident members who elect to file a Nonresident
Member Withholding Exemption Affidavit agreeing to be subject to the personal
jurisdiction of the Tax Commission in the courts of this state for the purpose
of determining and collecting any Oklahoma taxes, including estimated tax
payments, and any related interest and penalties, must remit the affidavit to
the appropriate pass-through entity. The pass-through entity is to retain the
affidavit and file the following information with the Oklahoma Tax Commission
by the due date of the required annual tax return of the pass-through entity.
(1)
Content. The name, address,
and social security number or federal identification number of the non-resident
member having signed an affidavit. All pass-through entities are required to
file the non-resident member affidavit information on a CD with the Oklahoma
Tax Commission.
(2)
Format. The format for filing the CD will be in either a
spreadsheet format (i.e. Excel) or a database format (i.e. dbf or Access) or a
Delimited Text File.
(3)
Waiver. Pass-through entities may obtain a waiver from the CD
filing requirement if the pass-through entity can demonstrate that a hardship
would result if it were required to file on a CD. Direct waiver requests to the
Oklahoma Tax Commission, Oklahoma City, Oklahoma 73194.
Added at 21 Ok Reg 311,
eff 11-21-03 (emergency); Added at 21 Ok Reg 2623, eff 6-25-04; Amended at 22
Ok Reg 172, eff 10-21-04 (emergency); Amended at 22 Ok Reg 1589, eff 6-11-05;
Amended at 23 Ok Reg 2870, eff 6-25-06; Amended at 25 Ok Reg 2072, eff 7-1-08;
Amended at 29 Ok Reg 565, eff 5-11-12
