April 2009 - Do You Need to File a Claim for Refund?
If you filed your 2004 LLC tax return (Form 568) and paid a fee you may need to file a claim for refund for 2004. The time to request a refund is running out.
Prior to the enactment of Assembly Bill 198 (Stats. 2007, Ch. 381, effective on October 10, 2007, and operative for taxable years beginning on or after January 1, 2007), LLCs paid an annual fee based on the LLC's total income from all sources reportable to this state.
The constitutionality of the LLC fee under former Revenue and Taxation Code Section 17942 has been challenged in three separate court cases:
Northwest Energetic Services, LLC v. Franchise Tax Board – The LLC in this case registered with the Secretary of State but did no business in California. The Court of Appeal held that assessing an LLC fee on an entity that had no income attributable to activities in California was unconstitutional and the fee should be refunded. This case is now final with respect to the constitutional issue.
Ventas Finance I, LLC v. Franchise Tax Board, Court of Appeal, First Appellate District, A116277, A117751 - The LLC in this case had income attributable to activities within and without California. A decision was issued but is not final.
Bakersfield Mall, LLC v. Franchise Tax Board, San Francisco Superior Court CGC-07-462728 - The LLC in this case alleges it conducted all of its activities in California. The case is ongoing.
If you filed an LLC tax return (form 568) and paid a fee based on worldwide total income, regardless of where that income was sourced, you may want to file a claim for refund. If you want to file a claim for refund, there is a time limit to request a refund known as the statute of limitations.8 Generally, you can file a refund claim four years from the due date of the return or one year from the date of overpayment which ever occurs later. For most LLCs, the statute of limitations to request a refund of any or all of their 2004 fee will expire on April 15, 2009.
If an LLC wants to file a refund claim based on recent court cases, the representative or LLC should fax a letter at 916.845.9796 with the following information:
- The LLC name and identification number issued by the Secretary of State. Unregistered LLCs use the identification number issued by the FTB.
- This is a claim for refund.
- The tax years involved.
- A description of the issue (stating that the LLC fee is unconstitutional is enough).
- The amount of the claim, which should match the amount of the annual fee that the LLC paid.
- Name of person to contact, phone number, and fax number.
The letter must be signed by a representative with a valid power of attorney or signed by the LLC's managing member.
We will provide a confirmation of the faxed refund claim receipt. The refund claim will be held pending result of the court's final decision on this issue. FTB cannot email information since the letter will contain confidential information.
Although we prefer a fax, you can send claims for refund for this issue by sending a letter or an amended return to the following address:
Franchise Tax Board
PO Box 942867
Sacramento CA 94267-8888
Because the decision in Northwest with respect to the LLC fee is final, we are processing refund claims for LLCs that have the same facts as were involved in the Northwest case, i.e., an LLC that conducted no activities in California. Both the Ventas and Bakersfield cases are still pending and action on claims for LLCs that have the same facts as were involved in either of these cases will be held pending the final court decision.
For more information, go to our website and search for FTB Notice 2008-2.
New Jobs Tax Credit
A New Jobs Tax Credit is now available for employers beginning on or after January 1, 2009. The credit, which will be claimed on the 2009 tax return, is $3000 for each additional full-time employee for small businesses with 20 or less employees. This credit will not be subject to the 50 percent limitation for business credits.
The total amount of the credit available to taxpayers will be capped at $400 million. We will determine when the cap has been reached and will set a cut-off date for claiming the credit. The credit must be claimed on a timely filed original return received by us before the cut-off date. This cut-off date is defined as the last day of the calendar quarter within which we estimate the $400 million limit will be reached. The cut-off date has not yet been determined.
Taxpayers claiming the credit after the cut-off date will be notified that the credit is denied. If the credit is denied because the cap has been reached, taxpayers will not be subject to the underpayment of estimated tax penalty or underpayment of tax penalty to the extent that the underpayment was created or increased by the disallowance of the credit.
An employer will qualify for the credit if:
- Each qualified full-time hourly employee is paid wages for not less than an average of 35 hours per week.
- Each qualified full-time employee that is a salaried employee was paid compensation during the year for full-time employment within the meaning of Section 515 of the Labor Code.
- On the last day of the preceding taxable year, they employed a total of 20 or fewer employees.
- There is a net increase in qualified full-time employees compared to the number of full-time employees employed in the preceding taxable year. For taxpayers who first commence doing business in California during the taxable year, the number of qualified full-time employees employed in the preceding year would generally be zero, unless certain special rules apply.
An employer may not claim the credit for those employees who are any of the following:
- Certified as a qualified employee in an enterprise zone or targeted tax area.
- Certified as a qualified disadvantaged individual in a manufacturing enhancement area or a targeted tax area.
- Certified as a qualified disadvantaged individual or qualified displaced employee in a local agency military base recovery area.
- An employee whose wages are included in calculating any other credit allowed.
8California Revenue and Taxation Code Sections 19306, 19308, 19311, 19312, and 19313.