California LLC Fee Held Unconstitutional – Protective Refund Claim Procedure Announced
SALT Alert, March 21, 2006

California

imposes a graduated gross receipts fee on any LLC organized in California , registered to do business with the California Secretary of State, or doing business in the state, regardless of the state of organization or registration with the California Secretary of State. The fee is based on income from all sources without any apportionment. The maximum LLC fee of $11,790 applies to taxpayers with total gross receipts of $5 million or more.

LLC Fee Ruled Unconstitutional

The Superior Court of California, San Francisco County issued a March 2, 2006 decision in Northwest Energetic Services, LLC v. California Franchise Tax Board holding that the LLC fee is a tax and that it violates the "fair apportionment" requirement under U.S. Constitution. The Superior Court ruling is not binding precedent until it is upheld by a Court of Appeals and all subsequent appeal procedures are exhausted.

Protective Refund Claims

The California Franchise Tax Board has published a simplified procedure for filing protective refund claims based on the Northwest decision. Under the simplified procedure, a refund request in a letter format can be filed in lieu of amended returns.

Time is of the Essence

Refund claims must be filed within the statute of limitations period, which is generally four years from the later of the date the return was originally due, or if filed under a valid extension, the date the return was filed. A calendar year LLC that filed a 2001 LLC fee return by the original due date of April 15, 2002 has until April 15, 2006 to file a protective refund claim for such tax year.

Plante & Moran can assist you in filing a California LLC fee protective refund claim. Please contact us if you have questions and for more information.

The information provided in this alert is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC is not rendering legal, tax, accounting, or other professional advice or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use.