California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 2.5 - Personal Income Tax (Taxable Years Beginning After 12-31-54) › Subchapter 10.6 - Tax and Fees on Limited Liability Companies › Section 17942 - LLC Fees

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) In
				  addition to the tax imposed under Revenue and Taxation Code section
				  17941,
				  every limited liability company subject to tax under Revenue and Taxation Code
				  section
				  17941
				  shall pay annually to the state a fee determined by the amount of total income
				  from all sources derived from or attributable to this state for the taxable
				  year.
(b) "Total income from all
				  sources derived from or attributable to this state" means gross income, as
				  defined in Revenue and Taxation Code section
				  24271,
				  plus the cost of goods sold that is paid in or incurred in connection with the
				  trade or business of the taxpayer. This amount does not include, however, any
				  allocation or attribution of income or gain or distributions made to the
				  limited liability company in its capacity as a member or holder of an economic
				  interest in another limited liability company, so long as the income of the
				  limited liability company that earned the income was itself subject to the fee
				  described in Revenue and Taxation Code section
				  17942.
EXCEPTION: Assume A, a limited liability company organized
					 in Georgia that is taxed as a partnership, has total income from all sources
					 derived from or attributable to this state from its own business activities in
					 the amount of $400,000. A also owns an interest in B, a limited liability
					 company organized in Ohio that is also taxed as a partnership. B has total
					 income from all sources derived from or attributable to this state from its
					 business activities in the amount of $200,000. A's distributive share of B's
					 total income from all sources attributable to this state is $150,000. In
					 calculating its total income from all sources derived from or attributable to
					 this state, A will not include its $150,000 distributive share of income from
					 B, even though B did not actually pay any limited liability company fee itself
					 (under these facts, B's total income is below the $250,000 minimum threshold
					 for the imposition of the fee), because the $200,000 earned by B was "subject
					 to" the fee. As a result, A will pay a fee based on its total income from all
					 sources derived from or attributable to this state of
					 $400,000.
(c) Items of total
				  income from all sources derived from or attributable to this state that a
				  limited liability company receives from pass-through entities, other than other
				  limited liability companies that are themselves subject to the fee, must be
				  computed and assigned for purposes of the limited liability company fee
				  calculation. This means that a limited liability company's distributive share
				  of items allocated to it by another pass-through entity that is not itself a
				  limited liability company must be adjusted to include cost of goods sold, if
				  applicable, in order to compute the correct amount of total income for fee
				  purposes.
EXCEPTION: Assume C, a limited liability company organized
					 in Oregon that is taxed as a partnership, has a 50 percent interest in
					 Partnership X. During the year, Partnership X sells widgets for $10,000 with a
					 related cost of goods sold of $5,000. C is allocated a 50 percent distributive
					 share of X's gross income from Partnership X in the amount of $2,500 at the end
					 of the year. For limited liability company fee purposes, in addition to any
					 total income from its own activities, C has an item of total income of $5,000,
					 comprised of C's $2,500 distributive share of gross income from X, plus the
					 associated $2,500 of cost of goods sold from X representing C's distributive
					 share of X's cost of goods sold.
(d) To determine total income from all
				  sources derived from or attributable to this state, the assignment rules of
				  Revenue and Taxation Code sections
				  25135
				  and
				  25136,
				  and the regulations thereunder, as modified by regulations under Revenue and
				  Taxation Code section
				  25137,
				  other than those provisions that exclude receipts from the sales factor, are to
				  be utilized. These rules are the sales factor numerator assignment rules of the
				  apportionment formula for entities paying the corporate franchise or income
				  tax. For taxable years beginning on or after January 1, 2012, for purposes of
				  computing the limited liability company fee, sales of other than tangible
				  personal property shall be assigned under Revenue and Taxation Code section
				  25136
				  using the same method as that elected under Revenue and Taxation Code section
				  25128.5
				  to assign sales for apportionment purposes. For taxable years beginning on or
				  after January 1, 2013, sales of other than tangible personal property shall be
				  assigned using the standard assignment rules contained in Revenue and Taxation
				  Code section
				  25136,
				  applicable for taxable years beginning on or after January 1, 2013.
(1) Items of total income from all sources
				  derived from or attributable to this state that are derived from the passive
				  holding of intangible personal property, an activity that may not have been
				  assigned to a location due to Regulation section
				  25137, subsection (c)(1)(C), must
				  be assigned to a location for purposes of computing the limited liability
				  company fee. Income derived from such property shall be assigned for limited
				  liability company fee purposes to the location from which the intangible
				  personal property is managed by the limited liability company.
EXCEPTION: Assume D, a limited liability company organized
					 in Indiana that is taxed as a partnership, holds a portfolio of bonds that
					 generates interest income. Assume an individual bond portfolio manager located
					 in Nevada monitors these bond investments and makes decisions regarding the
					 portfolio. In assigning the interest income from the bonds for limited
					 liability company fee purposes under this regulation, the income will be
					 assigned to Nevada, the state where the individual bond portfolio manager is
					 located.
(2) Occasional
				  sales of assets are disregarded for sales factor purposes under the rules of
				  Regulation section
				  25137, subsection (c)(1)(A), under
				  certain circumstances. However, for purposes of computing the limited liability
				  company fee, total income from all sources derived from or attributable to this
				  state from occasional sales of assets must be assigned to a location.
				  Therefore, for taxable years beginning on or after January 1, 2012, the
				  apportionment methodology election made by the taxpayer pursuant to Revenue and
				  Taxation Code section
				  25128.5
				  shall apply and total income from all sources derived from or attributable to
				  this state shall be assigned under Revenue and Taxation Code section
				  25136
				  in accordance with such election. For taxable years beginning on or after
				  January 1, 2013, total income from all sources derived from or attributable to
				  this state shall be assigned under Revenue and Taxation Code section
				  25136.
EXCEPTION: Assume E, a limited liability company organized
					 in California that is taxed as a partnership, elects single-factor sales
					 pursuant to Revenue and Taxation Code section
					 25128.5.
					 Therefore, for purposes of calculating the LLC fee, total income from all
					 sources derived from or attributable to this state will be assigned based on
					 the market-rules for sales contained in Revenue and Taxation Code section
					 25136,
					 subdivision (b).
(3) All
				  items of total income from all sources received by the limited liability
				  company from other pass-through entities, other than as specifically provided
				  by subsection (b) of this regulation, shall be assigned to the state where the
				  partnership assigned the income on the Schedule K-1 provided to the limited
				  liability company.