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Recent Court Decision Finds that the California LLC Fee Is Unconstitutional

March 30, 2006

By Julian B. Decyk and Douglas A. Schaaf

In its recent decision in Northwest Energetic Services, LLC v. California Franchise Tax Board, the Superior Court of San Francisco County held that the State of California “Limited Liability Company Fee” is in reality an unconstitutional tax. The levy was found to be unconstitutional because the manner in which the tax was calculated did not take into account the possibility that the income being taxed was derived, in whole or in part, from sources outside of California.

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