LLC doing business in CA when you have LLC in another State

[Ashish Acharya]

I think this would help to determine if your LLC might be subject to CA LLC Tax

The California Office of Tax Appeals has ruled on whether a Minnesota limited liability company (LLC) was doing business in California and, therefore, subject to the California annual LLC tax for certain tax years. In California, every LLC is required to pay the tax for the privilege of doing business in California.

"Doing business" means: (1) actively engaging in any transaction for the purpose of financial or pecuniary gain or profit; or (2) satisfying certain bright-line nexus thresholds consisting of sales, property, or payroll amounts. In this case, for tax years 2013 and 2014, the record shows that the Minnesota LLC's interest in an entity, which is a multi-member LLC classified as a partnership for income tax purposes that entered into a joint venture to purchase real properties in California, more closely resembles that of a limited, rather than a general, partner and, therefore, the Minnesota LLC was not doing business in California for those tax years.

Alternatively, the profit interest should be used in determining the Minnesota LLC's distributive share of the property of the entity.

For tax years 2013 and 2014, using the profit interest percentage results in a certain dollar amount of property in California that does not exceed the property threshold and, therefore, the Minnesota LLC was not doing business in California for those tax years.

However, for tax years 2015, 2016, and 2017, the threshold was exceeded and, therefore, the Minnesota LLC was doing business in California for those tax years.

(In the Matter of the Appeal of: MJK Real Estate Fund II, LLC, Cal. Office of Tax Appeals, 2022-OTA-247P, 05/26/2022 (Pending Precedential) (released August 2022).)