Company With Passive Interest in LLC Not Subject to Franchise Tax, California Appellate Court Says

Company With Passive Interest in LLC Not Subject to Franchise Tax, California Appellate Court Says

An out-of-state corporation holding a passive interest in a manager-run California passthrough entity is not considered to be doing business in the state for franchise tax purposes, a California appellate court held January 12.
 
The California Court of Appeal, Fifth Appellate District, determined in Swart Enterprises Inc. v. Franchise Tax Board that because the business activities of a partnership can't be attributed to its limited partners, the taxpayer in the case can't be deemed to be engaged in business in California solely by virtue of its ownership interest in a limited liability company.