California estimated LLC Fee

Discussion in 'Tax' started by Pico Rico, Feb 2, 2012.

  1. Pico Rico

    Pico Rico Guest

    This is the "fee", not the "tax". The "tax" is a fee, a fixed amount per
    year. The "fee" is a tax, based on gross receipts.

    Anyway, there appears to be no safe harbor for the estimated fee. So, if
    you in good faith determine that the LLC gross receipts will not exceed
    $999,999 you pay an estimated fee of $2,500. Then your LLC has a good year,
    and its gross receipts exceed $1M. You are now penalized for not paying the
    $6,000 in estimated fees.

    Is this correct?

    Can you pay an additional estimated fee in December (or after 12/31?) and
    beat the penalty?

    --
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    Pico Rico, Feb 2, 2012
    #1
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  2. Pico Rico

    Guest

    On Feb 2, 9:19 am, "Pico Rico" <> wrote:

    > This is the "fee", not the "tax".  The "tax" is a fee, a fixed amount per
    > year.  The "fee" is a tax, based on gross receipts.
    >
    > Anyway, there appears to be no safe harbor for the estimated fee.  So, if
    > you in good faith determine that the LLC gross receipts will not exceed
    > $999,999 you pay an estimated fee of $2,500.  Then your LLC has a good year,
    > and its gross receipts exceed $1M.  You are now penalized for not paying the
    > $6,000 in estimated fees.
    >
    > Is this correct?
    >
    > Can you pay an additional estimated fee in December (or after 12/31?) and
    > beat the penalty?


    BEGIN QUOTES http://www.taxes.ca.gov/Income_Tax/limliacobus.shtml
    says:

    The annual tax is due on the 15th day of the fourth month after the
    beginning of the tax year.

    The limited liability company fee must be paid by the original return
    due date of the partnership return.

    END QUOTES

    So for a calendar year LLC operating from 1/1/2011 to 12/31/2011,
    looks like the $800 should have been paid on 4/15/2011. The LLC fee
    should be paid on 4/15/2012. Also it looks like the LLC is subject to
    a corporate tax of 8.84 percent, and the excess of this over $800 is
    also due on 4/15/201.


    But now it gets confusing:

    BEGIN QUOTE https://www.ftb.ca.gov/businesses/bus_structures/LLcompany.shtml

    Estimated Tax

    If the Limited Liability Company is classified as a corporation and
    files California Form 100, the following estimated tax guidelines
    apply.

    * The estimated tax is payable in four installments.
    * Installments are due and payable on April 15, June 15, September
    15, and December 15.
    * Corporations complete Form 100-ES to report their estimated
    taxes.
    * Additionally, members may have to make estimated tax payments
    for their own reporting purposes.

    If the Limited Liability Company is classified as a partnership or
    disregarded entity and files California Form 568, the following
    estimated tax guidelines apply:

    * Estimated LLC fee is due by the 15th day of the 6th month.
    * Members may have to make estimated tax payments for their own
    reporting purposes.

    END QUOTE

    Note above it says "estimated LLC fee" is due by 6/15 -- if your LLC
    is a disregarded entity. There is a difference between estimated and
    actual LLC fee, so I suppose you must pay the estimate by a certain
    date, and the actual later, and there won't be a penalty if the actual
    is much higher than the estimate.

    I would think the proper procedure is to annualize your income each
    quarter and calculate estimated payments based on a flat tax of 8.84%
    (but pay at least $800 in the first quarter), calculate LLC fee based
    on annualized income and pay this amount too.


    Also I found

    BEGIN QUOTE https://www.ftb.ca.gov/professionals/taxnews/article/llcfee.shtml

    LLC Fee Constitutionality Comes Into Question

    In a recent superior court case, Northwest Energetic Services, LLC v.
    FTB (San Francisco Superior Court Case No. CGC-05-437721), the court
    issued a Proposed Statement of Decision ruling California's LLC fee is
    unconstitutional because it is an unapportioned tax on income. The
    Court determined the LLC fee violates the Commerce and Due Process
    clauses. The LLC fee, which is imposed by R&TC �17942, computes the
    fee based on worldwide income.

    END QUOTE

    No idea whether the above has been resolved or not.

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    , Feb 2, 2012
    #2
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  3. Pico Rico

    Pico Rico Guest

    "Pico Rico" <> wrote in message
    news:jge9h0$hmr$...
    > This is the "fee", not the "tax". The "tax" is a fee, a fixed amount per
    > year. The "fee" is a tax, based on gross receipts.
    >
    > Anyway, there appears to be no safe harbor for the estimated fee. So, if
    > you in good faith determine that the LLC gross receipts will not exceed
    > $999,999 you pay an estimated fee of $2,500. Then your LLC has a good
    > year, and its gross receipts exceed $1M. You are now penalized for not
    > paying the $6,000 in estimated fees.
    >
    > Is this correct?
    >
    > Can you pay an additional estimated fee in December (or after 12/31?) and
    > beat the penalty?


    >From the CA form 3536 instructions (which seems different than what I read

    just a couple days ago someplace . . .)



    If the LLC underpays the estimated fee, a penalty of 10% of the amount of
    any underpayment will be added to the fee. The underpayment amount will be
    equal to the difference between the total amount of the fee due for the
    taxable year less the amount paid by the estimated fee due date. A penalty
    will not be imposed if the estimated fee paid by the due date is equal to or
    greater than the total amount of the fee of the LLC for the preceding
    taxable year. To avoid late payment penalties and interest, the LLC's
    estimated fee must be paid by the 15th day of the 6th month of the current
    taxable year. The penalty and interest will be computed from the due date of
    the return to the date of the payment.

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Pico Rico, Feb 3, 2012
    #3
  4. On Feb 2, 9:19 am, "Pico Rico" <> wrote:
    > This is the "fee", not the "tax".  The "tax" is a fee, a fixed amount per
    > year.  The "fee" is a tax, based on gross receipts.
    >
    > Anyway, there appears to be no safe harbor for the estimated fee.  So, if
    > you in good faith determine that the LLC gross receipts will not exceed
    > $999,999 you pay an estimated fee of $2,500.  Then your LLC has a good year,
    > and its gross receipts exceed $1M.  You are now penalized for not paying the
    > $6,000 in estimated fees.
    >
    > Is this correct?
    >
    > Can you pay an additional estimated fee in December (or after 12/31?) and
    > beat the penalty?
    >
    > --



    There is a prior year exception: no penalty if the estimated fee paid
    is at least as much as the prior year's fee. See the Form 3536
    instructions, under "Penalties and Interest," at https://ftb.ca.gov/forms/2012/12_3536.pdf.
    and CRTC Sec. 17942(d)(2). So, what was the fee paid for the 2010
    year? If in your example, the 2010 fee was $2,500, there will be no
    estimated fee penalty if the 2011 fee turns out to be $6,000 and you
    pay the difference by the due date of the return. If the 2010 fee was
    $6,000, but you only paid $2,500 as of June 15, 2011 (the due date of
    the estimated fee), you can reduce the penalty by paying the
    difference as soon as possible. According to the Form 3536
    instructions the penalty runs from the date the amount was due until
    the date it is paid, although the statute seems to say it is a flat
    10%, not 10% per annum.

    Ignore ps-remove's remarks about corporations. An LLC that has
    elected to be taxed as a corporation is not subject to the LLC fee.

    Katie in San Diego

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Katie in San Diego, Feb 10, 2012
    #4
  5. On Feb 2, 2:28 pm, "" <removeps-
    > wrote:

    snip

    > Also I found
    >
    > BEGIN QUOTEhttps://www.ftb.ca.gov/professionals/taxnews/article/llcfee.shtml
    >
    > LLC Fee Constitutionality Comes Into Question
    >
    > In a recent superior court case, Northwest Energetic Services, LLC v.
    > FTB (San Francisco Superior Court Case No. CGC-05-437721), the court
    > issued a Proposed Statement of Decision ruling California's LLC fee is
    > unconstitutional because it is an unapportioned tax on income. The
    > Court determined the LLC fee violates the Commerce and Due Process
    > clauses. The LLC fee, which is imposed by R&TC 17942, computes the
    > fee based on worldwide income.
    >
    > END QUOTE
    >
    > No idea whether the above has been resolved or not.
    >


    ps, you are confusing the LLC fee provisions with the rules that apply
    to LLCs that have elected to be taxed as corporations. Those LLCs are
    not subject to the LLC fee. Instead, they are subject to the measured
    corporate franchise or income tax.

    The Court of Appeal in a later case held that the fee was
    unconstitutional for want of apportionment, but limited the refund to
    the difference between the fee the taxpayer paid and the fee it would
    have paid had an apportionment provision applied (Ventas Finance I
    LLC v. FTB, 165 Cal App 4th 1207 81 Cal Rptr 3d 823, 08/11/2008., pet.
    for rev. denied 11/12/08, Calif. Sup. Ct. Dkt. No. S166870). The
    California Supreme Court denied the taxpayer's petition for review, as
    noted in the citation, and the US Supreme Court denied its petition
    for certiorari (Dkt No. 08–1022, 04/06/2009).

    In 2007 the Legislature amended Sec. 17942 so that the fee basis is
    calculated under the rules that apply for assigning gross receipts to
    the California numerator of the sales factor in the apportionment
    formula. The change applies for years beginning on or after 1/1/07
    and to claims for refund for prior years.

    Katie in San Diego

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Katie in San Diego, Feb 10, 2012
    #5
  6. Pico Rico

    Guest

    On Feb 10, 10:15 am, Katie in San Diego <> wrote:

    > > BEGIN QUOTEhttps://www.ftb.ca.gov/professionals/taxnews/article/llcfee.shtml

    >
    > > LLC Fee Constitutionality Comes Into Question

    >
    > > In a recent superior court case, Northwest Energetic Services, LLC v.
    > > FTB (San Francisco Superior Court Case No. CGC-05-437721), the court
    > > issued a Proposed Statement of Decision ruling California's LLC fee is
    > > unconstitutional because it is an unapportioned tax on income. The
    > > Court determined the LLC fee violates the Commerce and Due Process
    > > clauses. The LLC fee, which is imposed by R&TC 17942, computes the
    > > fee based on worldwide income.

    >
    > > END QUOTE

    >
    > > No idea whether the above has been resolved or not.

    >
    > ps, you are confusing the LLC fee provisions with the rules that apply
    > to LLCs that have elected to be taxed as corporations.  Those LLCs are
    > not subject to the LLC fee.  Instead, they are subject to the measured
    > corporate franchise or income tax.
    >
    > The Court of Appeal in a later case held that the fee was
    > unconstitutional for want of apportionment, but limited the refund to
    > the difference between the fee the taxpayer paid and the fee it would
    > have paid had an apportionment provision applied  (Ventas Finance I
    > LLC v. FTB, 165 Cal App 4th 1207 81 Cal Rptr 3d 823, 08/11/2008., pet.
    > for rev. denied 11/12/08, Calif. Sup. Ct. Dkt. No. S166870).  The
    > California Supreme Court denied the taxpayer's petition for review, as
    > noted in the citation, and the US Supreme Court denied its petition
    > for certiorari (Dkt No. 08–1022, 04/06/2009).


    How do you find out how a court case concluded? Is there some
    website, because when I searched in google and bing I found the case
    from 2007 -- as maybe that's the most popular result by search engine
    rankings. But there should be someplace where it will track the
    progress of that case

    > In 2007 the Legislature amended Sec. 17942 so that the fee basis is
    > calculated under the rules that apply for assigning gross receipts to
    > the California numerator of the sales factor in the apportionment
    > formula.  The change applies for years beginning on or after 1/1/07
    > and to claims for refund for prior years.


    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    , Feb 11, 2012
    #6
  7. "" <> wrote:

    >> The Court of Appeal in a later case held that the fee was
    >> unconstitutional for want of apportionment, but limited the
    >> refund to the difference between the fee the taxpayer paid and
    >> the fee it would have paid had an apportionment provision
    >> applied ÿ(Ventas Finance I LLC v. FTB, 165 Cal App 4th 1207 81
    >> Cal Rptr 3d 823, 08/11/2008., pet. for rev. denied 11/12/08,
    >> Calif. Sup. Ct. Dkt. No. S166870). ÿThe California Supreme
    >> Court denied the taxpayer's petition for review, as noted in
    >> the citation, and the US Supreme Court denied its petition for
    >> certiorari (Dkt No. 08-1022, 04/06/2009).

    >
    > How do you find out how a court case concluded? Is there some
    > website, because when I searched in google and bing I found the
    > case from 2007 -- as maybe that's the most popular result by
    > search engine rankings. But there should be someplace where it
    > will track the progress of that case


    Google scholar (scholar.google.com) has a lot of California cases,
    but apparently not this one. There are other fee sites that have
    some cases (e.g. findlaw.com), though they are not consistent. You
    may have to either go to a law library or use a paid service.

    ___
    Stu
    http://DownToEarthLawyer.com

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Stuart A. Bronstein, Feb 12, 2012
    #7
  8. Pico Rico

    paultry Guest

    On 2/11/2012 7:56 PM, Stuart A. Bronstein wrote:
    > ""<> wrote:
    >
    >>> The Court of Appeal in a later case held that the fee was
    >>> unconstitutional for want of apportionment, but limited the
    >>> refund to the difference between the fee the taxpayer paid and
    >>> the fee it would have paid had an apportionment provision
    >>> applied ÿ(Ventas Finance I LLC v. FTB, 165 Cal App 4th 1207 81
    >>> Cal Rptr 3d 823, 08/11/2008., pet. for rev. denied 11/12/08,
    >>> Calif. Sup. Ct. Dkt. No. S166870). ÿThe California Supreme
    >>> Court denied the taxpayer's petition for review, as noted in
    >>> the citation, and the US Supreme Court denied its petition for
    >>> certiorari (Dkt No. 08-1022, 04/06/2009).

    >>
    >> How do you find out how a court case concluded? Is there some
    >> website, because when I searched in google and bing I found the
    >> case from 2007 -- as maybe that's the most popular result by
    >> search engine rankings. But there should be someplace where it
    >> will track the progress of that case

    >
    > Google scholar (scholar.google.com) has a lot of California cases,
    > but apparently not this one. There are other fee sites that have
    > some cases (e.g. findlaw.com), though they are not consistent. You
    > may have to either go to a law library or use a paid service.
    >


    pacer.gov provides access to many federal court cases at
    little or no cost to the occasional user.

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    paultry, Feb 12, 2012
    #8
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