How should my daughter report out-of-state income from a university fellowship?

This answer was provided by Mark Misselbeck, Levine Katz Nannis & Solomon PC, Needham.

Q: My daughter is a student at the University of Michigan. She is still a Massachusetts resident. In 2003 she received a W2 from the college for a student-funded fellowship. Her only other income is interest from Massachusetts banks. How (and where) does she file her state income taxes -- Massachusetts, Michigan, or both states? --Mary, Waltham

A: Your daughter will need to file a non-resident return with MI, reporting only the income earned there. She will also need to file a MA resident return, reporting all of her income, wherever generated. She may claim a credit against her MA taxes for the taxes imposed on income that she has reported to both states, up to the amount of tax that is treated as being imposed on the income reported to the other state by MA. Sch. XYZ is used with a MA return to claim such credits.