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LLC fee refunds based on Northwest decision

On April 14, we released FTB Notice 2008-2 to address protective claims regarding the LLC fee. This Notice relates specifically to a recent court decision on Northwest Energetic Services (NES), LLC v. Franchise Tax Board.

NES was a foreign LLC that registered with the California Secretary of State, but did no business in California. In a recent decision on this case, the California Court of Appeal, First Appellate District, held that assessing an LLC fee to an entity that had no income attributable to business conducted in California was unconstitutional as applied to NES, and the fee should be refunded.

Two additional pending court cases address the constitutionality of the LLC fee:

  • Ventas Finance I, LLC – a foreign LLC registered in California that earned income inside and outside California.
  • Bakersfield Mall, LLC – a foreign LLC that claims it earned income only in California.

These cases are ongoing and final decisions have not been issued.

Because the NES decision about the LLC fee is now final, it is possible to take action on claims for refund filed by LLCs that had no income attributable to activities in California. Some claims don’t provide enough information, however, to determine whether the LLC that filed the claim has the same facts as those involved in NES. If you file, or have filed claims for your clients based on the facts in NES, you should provide the following information:

  • The LLC's name, address, and the name and phone number of the managing member or designated contact person.
  • The LLC's Secretary of State file number or Franchise Tax Board temporary LLC number (for unregistered entities), and Federal Employer Identification Number.
  • Taxable Year(s) involved.
  • A statement that the LLC did no business in California for each of the taxable years for which the claim is being filed.

If your client hasn’t filed a claim for refund but wants to, include the above information in a letter along with the statement, "This letter constitutes a claim for refund for (taxpayer's name) – No income attributable to California," and the amount of claim per year. Any claim for refund must be signed by a representative with power of attorney (POA) or signed by the LLC's managing partner.

Fax all information to FTB at: 916.845.9796

Or, you may mail this information to:

ABS 389 MS: F340
Franchise Tax Board
PO Box 942867
Sacramento, CA 94267-8888

Courier service delivery or private courier mail:

ABS 389 MS: F340
Franchise Tax Board
C/O FTB Notice 2008-2
Sacramento, CA 95827