California law seems to require withholding of tax on distributions to nonresident beneficiaries, including your Texas S-Corp.  "A partnership is required to withhold funds for income or franchise taxes when it makes a distribution of income to a domestic (U.S.) nonresident partner (R&TC Section 18662)." (Form 565 instructions.)  I'm also puzzled by Lines 12 and 13 of the Form 565, which seem to allow only guaranteed payments to partners, and those would be taxed as California source.  (The Texas S-Corp would still be required to file a California return, right?  But which form?)  

I have family members in a similar situation as your client, but I let their California CPA sort this out and pay for the related liability insurance.  My general rule is "if it sounds too good to be true, it probably isn't." Corollary is "don't expect a good answer from online randos."