FTB updates LLC guidance in light of Swart

In Legal Ruling 2018-01, the FTB states that an out-of-state member in an LLC doing business in California is also doing business in California, regardless of whether the member is manager-managed or member-managed. The FTB notes that Swart Enterprises, Inc. v. FTB provides a narrow exception to this rule.1 In Swart, a California court of appeal held that an out-of-state corporation with a 0.2% in a California manager-managed LLC was not doing business in California as a result of its passive investment in the LLC. In the ruling, the FTB is vague on how much above the 0.2% interest in the LLC can have and not be subject to the $800 annual tax.passive interest is doing business in California. Note: Spidell disagrees with this narrow interpretation. See “FTB issues instructions for Swart refund claims” in the April 2018 issue of Spidell’s California Taxletter® for more information.

1 Swart Enterprises, Inc. v. FTB (January 12, 2017) 7 Cal.App.5th 497