Unified Nonresident Income Tax Return (Form 765)
For Owners of S Corporations, Partnerships and Limited Liability Companies
A business pass-through entity (S corporation, partnership or limited liability company) that transacts business in Virginia and has two or more qualified nonresident owners may file a composite, nonresident individual income tax return on behalf of its qualified owners. For taxable years beginning prior to January 1, 2015, a pass-through entity was required to obtain the consent of each nonresident owner in order to file a composite return. Effective for taxable years beginning on or after January 1, 2015, a pass-through entity may file a composite return for only a portion of its qualified nonresident owners, provided that the pass-through entity pays the pass-through entity withholding tax for any qualified nonresident owners who are not included in the composite return.
A qualified owner is a natural person who is a direct owner of the entity filing the composite return, and a nonresident of Virginia with Virginia source income from that entity for the taxable year. If the qualified owner has other income from Virginia sources that is not derived from a pass-through entity, the owner must file file a Virginia Nonresident Income Tax Return (Form 763) to account for that income. Income reported in the unified filing on Form 765 should be deducted on Form 763. An individual who is a qualified nonresident owner in more than one pass-through entity may participate in multiple unified returns.
To file a composite return, a pass-through entity must meet the following requirements:
- The pass-through entity must provide a completed copy of Schedule VK-1 to each qualified nonresident owner included in the composite return.
- The Virginia income tax on the composite return must be computed using the highest rate specified under Va. Code § 58.1-320 on the partnership's income attributable to the qualified nonresident owners included on the composite return without the benefit of itemized deductions, standard deductions, personal exemptions, credits for income taxes paid to states of residence, any tax credit carryover amounts, or any other tax credits that are not attributable to the pass-through entity.
- The pass-through entity must obtain a signed consent form from each participating qualified nonresident owner indicating the owner’s consent to inclusion in the composite return.
- The composite return must be signed by an owner, officer, or employee of the pass-through entity who is authorized to act on behalf of the pass-through entity in tax matters. By signing the composite return, the signer is declaring that he or she is an authorized representative of the pass-through entity and that each participant has signed a consent form authorizing the pass-through entity to act on the participant’s behalf in the matter of composite returns and acknowledging the participant’s understanding and acceptance of all of the terms and conditions of participation in a composite return.
- The pass-through entity must make estimated payments on behalf of the qualified nonresident owners included on a composite return.
A pass-through entity that files a composite return on behalf of its nonresident owners is not required to withhold Virginia income tax from distributions made to those owners. Instead, the entity should make estimated tax payments on a composite basis under its own federal employer identification number, using Form 760ES.