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UC, Berkeley, School of Law 590 Simon Hall Berkeley, CA 94720 T: 510.643.1076 F: 510.643.

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MEMORANDUM TO: FROM: DATE: RE: Worker Cooperative Coalition Policy Advocacy Clinic November 19, 2013 Gross Receipts Tax on California Limited Liability Companies

Question: Are California LLCs that elect corporate taxation subject to the gross receipts fee? Analysis: California LLCs that elect corporate taxation at the federal and state level do not have to pay the gross receipts fee that is imposed on LLCs that are taxed as partnerships. California Revenue and Taxation Code: California’s Franchise Tax Board (FTB) imposes a “gross receipts fee” on most LLCs that do business within the state of California.1 However, the gross receipts fee is only imposed on LLCs that are subject to tax under § 17941 of the code, which “means an organization . . . that is formed by one or more persons under the law of this state, any other country, or any other state, as a ‘limited liability company’ and that is not taxable as a corporation for California tax purposes.”2 California Tax Forms: LLCs classified as partnerships or disregarded entities file Form 568 LLC Return of Income, which assesses the gross receipts fee.3 LLCs that elect corporate taxation file Form 100 California Corporation Franchise of Income Tax Return, which does not assess the gross receipts fee.4 Summary: California treats LLCs that elect corporate taxation like corporations for the purposes of the gross receipts fee, meaning that LLCs taxed as corporations are not subject to the fee. An LLC may choose to be taxed as a corporation by filing the appropriate Entity Classification Election form (Form 8832) with the IRS. California will treat the LLC in the same manner it elects to be treated by the IRS.5

Cal. Rev. & T Code § 17942. Cal. Rev. & T Code § 17941. 3 California Franchise Tax Board, Limited Liability Company (LLC), available at https://www.ftb.ca.gov/businesses/bus_structures/LLcompany.shtml; California Franchise Tax Board, Limited Liability Company Filing Information, available at https://www.ftb.ca.gov/forms/misc/3556.pdf. 4 California Franchise Tax Board, supra note 3; California Franchise Tax Board, Instructions for 2013 Form 100ES, available at https://www.ftb.ca.gov/forms/2013/13_100esins.pdf. 5 California Franchise Tax Board, supra note 3.
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