Did a Texas LLC become subject to Louisiana corporation franchise tax merely because it elected federal and Louisiana corporation-income-tax treatment?

Plain-English summary

The Texas LLC was not subject to Louisiana corporation franchise tax even though it elected to be taxed as a corporation for federal and Louisiana corporation income-tax purposes.

The check-the-box election did not control franchise-tax classification. Under the law applied in the ruling, an LLC was treated like a limited partnership for taxes other than corporation income tax, and a limited partnership was not subject to corporation franchise tax.

Planned reorganization

A Louisiana-authorized Texas corporation would merge into the Texas LLC, leaving the LLC as survivor and owner of the former corporation's assets and liabilities. The LLC would remain a business-law LLC while retaining its federal corporate tax election.

Later steps would place the LLC under a Delaware corporate parent, but did not change the classification conclusion.

Common questions

Q: Did corporate treatment for income tax automatically control franchise tax?

A: No.

Q: How was the LLC treated for franchise tax under the ruling?

A: As a limited partnership.

Q: Was the LLC itself subject to corporation franchise tax?

A: No, on the stated facts and then-current law.

Citations and references

• La. R.S. 12:1368 — then-current LLC tax classification
• Louisiana Revenue Ruling 01-013 — check-the-box point discussed in the source
• Louisiana Revenue Ruling 02-018 and Revenue Information Bulletin 03-015 — LLC franchise-tax treatment cited in the source
• LAC 61:III.101 — Private Letter Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA PLR 05-015

Original ruling text

Policy Services Private Letter Ruling
Redacted Version
No. 05-015
Corporation Income Tax and Corporation Franchise Tax
Liability of Limited Liability Companies for Corporation Franchise Tax
December 28, 2005
This is in reply to your request for a private letter ruling addressing the liability of a Texas LLC
(“T LCC”) to Louisiana for corporation franchise tax.
Factual Scenario
You provided these facts:
Texas corporation (“T Corp 1”) is a corporation with a Louisiana Certificate of Authority and is
subject to the corporation franchise tax.
Step 1. T Corp 1 will form another Texas corporation (“T Corp 2”), as a 100 percent-owned
subsidiary. T Corp 1 will then be the parent of T Corp 2, and T Corp 2 will be a 100 percentowned subsidiary of T Corp 1.
Step 2. T Corp 2 will form T LLC, which will be a 100 percent-owned subsidiary of T Corp 2. T
Corp 2 will make an election to treat T LCC as an association taxable as a corporation. Under the
entity classification rules of the Internal Revenue Service (the so-called “check-the-box” rules),
T LCC will be treated as a corporation for both federal income tax purposes and for the
corporation income tax. However, T LCC will be formed as a LLC for business organization
purposes.
Step 3. Under Texas state law, T Corp 1 will merge into T LCC on or before December 31, 2005.
T Corp 1 will, therefore, cease to exist, and by operation of law its assets and liabilities will be
owned by T LCC. T Corp 2 will then be the parent of T LCC and T LCC will be a 100 percentowned subsidiary of T Corp 2. T LCC will continue to be treated and taxed as a corporation for
both federal income and corporation income tax purposes.
As a result of this merger, T Corp 2 will effectively be the parent of the group and T Corp 2 will
own T LCC directly.
Step 4. T Corp 2 will form a Delaware corporation (“D Corp”). T Corp 2 will then be the parent
of D CORP and D CORP will be a 100 percent-owned subsidiary of T Corp 2.
Step 5. Immediately after the formation of D CORP, T Corp 2 will contribute the membership
interests of T LCC (the Texas LLC formed in Step 2) to D CORP. D CORP will then be the
parent of T LCC and T LCC will be a 100 percent-owned subsidiary of D CORP. T LCC will

617 North Third Street
P. O. Box 44098
Baton Rouge, Louisiana 70804-4098
225-219-2780 ‚ 225-219-2759 Fax
TDD# 225-219-2114 ‚ www.revenue.louisiana.gov

PLR No. 05-015
Page 2 of 2
December 28, 2005
continue to be treated and taxed as a corporation for both federal income and corporation income
tax purposes.
Ruling Request
You have asked for a ruling on the following:
T LCC, a to-be-formed LLC, that checks the box to be taxed and treated as a corporation for
federal tax purposes, will not be subject to the corporation franchise tax.
Discussion
You also provided this in your analysis:
T LCC will be formed as a LLC and will be treated and taxed as a corporation for both federal
income and corporation income tax purposes. However, the Louisiana Department of Revenue
(the “Department”) has ruled that an election under the federal check-the-box regulations has no
effect on the treatment of an entity for corporation franchise tax purposes. Rev. Rul. No. 01-013.,
La. Dep’t Rev. (Oct. 1, 2001).
Instead, Louisiana statutory law treats LLCs as if they are limited partnerships for all tax
purposes other than the corporation income tax. La. Rev. Stat. Ann. §12:1368. Specifically, for
corporation franchise tax purposes, T LCC will be treated as if it were a limited partnership.
Since limited partnerships are not subject to the corporation franchise tax, T LCC will not be
subject to the corporation franchise tax. Rev. Rul. No. 02-018., La. Dep’t Rev. (Oct. 22, 2002),
Rev. Info. Bull. No. 03-015 (Aug. 25, 2003).
Ruling
Based on the facts and analysis that you provided, we agree with your conclusion and rule that T
LCC, a to-be-formed LLC, that checks the box to be taxed and treated as a corporation for
federal tax purposes, will not be subject to the corporation franchise tax. If you have any
questions or need additional information, please call Michael Pearson, Senior Policy Consultant
or Nina S. Hunter, Attorney, Policy Services Division, at 219-2780.

Sincerely,
Cynthia Bridges
Secretary

By:
Nina S. Hunter, Attorney
Policy Services

This correspondence constitutes a private letter ruling (PLR) by the Louisiana Department of Revenue, as provided for by
section 61:III.101 of the Louisiana Administrative Code. A PLR provides guidance to a specific taxpayer at the taxpayer's
request. It is a written statement that applies principles of law to a specific set of facts or a particular tax situation. A PLR
does not have the force and effect of law, and is not binding on the person who requested it or on any other taxpayer. This
PLR is binding on the department only as to the taxpayer to whom it is addressed, and only if the facts presented were
truthful and complete and the transaction was carried out as proposed. It continues as authority for the department's
position unless a subsequent declaratory ruling, rule, court case, or statute supersedes it.