California Assembly Bill 85 specifically exempts limited partnerships from the annual franchise tax for its first taxable year. AB 85 defines a limited partnership as follows:
"(d) For purposes of this section, “limited partnership” means any partnership formed by two or more persons under the laws of this state or any other jurisdiction and having one or more general partners and one or more limited partners."
Regarding the annual franchise tax and limited partnerships, AB 85 states the following:
"(f) (1) Every limited partnership doing business in this state as described in subdivision (a) that files a certificate of limited partnership or registers with the Secretary of the State pursuant to subdivision (b) on or after January 1, 2021, and before January 1, 2024, shall not be subject to the tax imposed under this section for its first taxable year."
A limited liability partnership would also be exempt from the annual franchise tax for its first taxable year. In this regard, AB 85 states the following:
"(e) (1) Every limited liability partnership doing business in this state as described in subdivision (a) that registers with the Secretary of the State pursuant to subdivision (b) on or after January 1, 2021, and before January 1, 2024, shall not be subject to the tax imposed under this section for its first taxable year."
An SMLLC that elects to be taxed as an S Corp would also be exempt from paying the annual franchise tax for its first taxable year.
Regarding further escalation of this matter, what we recommend at this point is that you contact the CA Franchise Board directly and request their opinion on whether SMLLCs are indeed exempt, in their first year, from the annual franchise tax. Their number is 1-800-852-5711.
Here is a link to CA Legislative website which contains AB 85.
California Legislative Information
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