22 Feb 2013 Delaware LLCs required to pay taxes in California
Delaware LLCs required to pay taxes in California
Many limited liability companies (LLCs) are formed under non-CA law (often Delaware), even if they are managed from California, to obtain the perceived benefits of Delaware law. The downside of filing in California is the $800 per year minimum franchise taxes. The Franchise Tax Board (FTB) has always taken the position that a foreign LLC that has California managers is “doing business” in California and must file a California income tax return. In one case, the LLC had all of its business activities in Montana real estate; nevertheless, because its managers were in California, the court held that the LLC was subject to California tax and reporting requirements. The FTB is now imposing a $2,000 annual penalty for each tax filing failure. Note that the passive holding of a membership interest would not enough to attract a California filing requirement, if the California member does not have management rights and the LLC is not otherwise doing business in the state. Absent that scenario, given the FTB’s position, any LLC with California managers would be well advised to register to do business in California and pay its minimum taxes.Disclaimer: This blog and website are public sources of general information concerning our firm and its lawyers, as well as the information presented. They are intended, but not promised or guaranteed, to be correct, complete, and up-to-date as of the date posted. This blog and website are not intended to be, and are not, sources of legal opinion or advice. The materials, information, and communications on this blog and website do not apply to any particular person, entity, or situation, and do not apply to you or to your specific situation. You will need to consult with an attorney and/or other appropriate professional about your specific situation. Thank you.