The California Franchise Tax Board has announced that it will not appeal a recent court ruling that a fee levied on limited liability companies is an unconstitutional tax. The FTB plans to issue a notice April 14 addressing how protective refund claims filed by taxpayers will be handled. The deadline for filing a refund claim for the 2003 tax year is April 15, 2008.
Since the FTB has determined that it will not appeal the appellate court’s ruling on the unconstitutionality of the fee, the ruling stands and becomes state law. Under the ruling, the LLC fee, levied based on a company’s total income, is unconstitutional because it is not apportioned based on the amount of income earned in California. (The court also held that the fee is a tax because it was levied only to raise revenue.)
The ruling in the court case applies to LLCs registered in California that only have income from outside the state. However, there are two other cases pending before the courts that involve different groups of taxpayers – LLCs with income from both within and without California and LLCs with only California income. Those types of LLCs may also be eligible for refunds.
For further information, please contact D. Matthew Richardson at (213)617-4222.