Two taxpayers’ motions for class action challenging the Franchise Tax Board’s (FTB’s) aggressive approach to taxing out-of-state investors have been certified for class action by a California superior court [Bahl Media, LLC v. FTB (order filed January 25, 2024) San Francisco Sup. Ct., Case No. CGC-17-554150]. The taxpayers take issue with the FTB’s imposition of the $800 annual tax and filing requirement when there is an indirect connection to California through passive ownership interests.
With a class action suit, out-of-state business entities that are passive owners of an LLC conducting business in California should be able to obtain refunds of the $800 tax and any penalties and interest paid. They won’t need to pursue relief through the Office of Tax Appeals (OTA) or the court system and won’t have to pay the $800 tax to challenge the FTB’s position.
Bahl Media, LLC, a New York LLC that does not conduct any business in California, was one of the taxpayers to file the motion. The LLC’s sole connection to California is an interest in another New York LLC that also does not do any business in California but that has a nonmanaging investment interest in a manager-managed California LLC; and Wein Realty, LLC, a New Jersey LLC, was the other taxpayer to file the motion. This LLC was a nonmanaging member of a manager-managed California LLC that issued a loan secured by a California property to an unrelated Delaware LLC.
The superior court ordered the taxpayers’ attorneys and the FTB’s attorneys to develop a plan to identify potential class members and said that the current class of taxpayers that may be eligible for relief are taxpayers that 1) paid the $800 annual/minimum tax and related interest and penalties, if any, to the FTB; 2) timely filed a refund claim for the amounts paid; 3) either had their refund claim denied after June 10, 2016, and before July 21, 2023 (the date of the plaintiff’s motion for class certification), or have not had their refund claim approved or denied and filed it at least six months prior to July 21, 2023; and 4) only had a connection to California through a passive ownership interest in an LLC doing business in California.
TECHNICAL INFORMATION CONTACTS:
Josh Booth
Principal
Ryan
916.790.3772
josh.booth@ryan.com
Gina Rodriquez
Principal
Ryan
279.600.3261
gina.rodriquez@ryan.com
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