(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.
(e) If
a limited liability company conducts all of its business activities in
California, then the limited liability company may simply calculate its total
income and may disregard the assignment rules set forth above, since the
application of the rules would result in the same amount of income being
assigned to this state.
(f)
Alternative method for assigning total income from all sources derived from or
attributable to this state. Under Regulation section
17951-4, a limited liability
company that is classified as a partnership under Revenue and Taxation Code
section
23038
and conducts its business within and without this state shall apportion its
income at the partnership level in accordance with Revenue and Taxation Code
sections
25120
through
25139.
The limited liability company shall determine its California sales factor
numerator pursuant to Revenue and Taxation Code sections
25135,
25136,
and, if applicable,
25137.
As an alternative, multistate limited liability companies may utilize this
apportionment information to calculate the limited liability company fee in the
following manner:
(1) If the sales factor
numerator amount is over five million dollars ($5,000,000) for the taxable
year, the limited liability company may report the sales factor numerator
amount as the correct amount for purposes of calculating the fee since the
sales factor amount exceeds the top bracket for calculating the fee
amount.
(2) If the sales factor
numerator is less than five million dollars ($5,000,000) for the taxable year,
then the limited liability company may use the sales factor numerator amount as
the starting point for the calculation of the fee and then make the following
adjustments:
(A) Assign all items of total
income from all sources that were previously assigned as nonbusiness income for
apportionment purposes, using the assignment rules of this
regulation.
(B) Assign, pursuant to
this regulation, all items of total income from all sources that were not
included in the sales factor numerator by operation of the provisions of
regulations under Revenue and Taxation Code section
25137 that exclude sales from the
sales factor.
(C) Remove all items
of total income that were derived from or attributable to other limited
liability companies that were subject to the limited liability company fee,
consistent with the methodology described in subsection (b) of this
regulation.
(3) If the
sales factor numerator amount is over five million dollars ($5,000,000) for the
taxable year, but the limited liability company has included an amount received
from another limited liability company in the numerator amount such that the
removal of that amount will result in the remaining sales factor numerator
falling below five million dollars ($5,000,000), the limited liability company
may remove the amount and then make the other adjustments pursuant to
subsections (2)(A) and (2)(B).
(g) This regulation shall apply to taxable
years beginning on or after January 1, 2012.
