California’s Legislature approved AB198, and the Governor recently signed the legislation into law. The bill changes how California’s LLC fee is calculated.
This legislation changes the LLC fee so that it is apportioned, in the same manner as the income tax is apportioned. This should make the fee constitutional for 2007 and onwards.
However, according to Spidell Publishing, the Franchise Tax Board is asserting that this legislation is retroactive to prior years. Two companies have successfully sued the FTB; courts ruled that the fee was unconstitutional. What the FTB will try to do in appeals court is to only have to refund the non-apportioned portions of the LLC fee.
I doubt this argument will hold up. This law was not in place in the years in question, and I don’t believe any legislature can go back into the past and change the law for prior years. I expect the FTB will lose this argument, and the state will have to refund the fees sometime in the future.
By the way, AB1546, another bill that would have fixed the LLC fee, was moved into the inactive file at the end of this past year’s term. This bill would have had many other deleterious impacts to California taxpayers, so I’m glad it’s dead.