How did a corporate owner compute Louisiana corporation franchise tax when all business activity occurred through its wholly owned single-member LLC?

Plain-English summary

The single-member LLC was not itself subject to corporation franchise tax, but its corporate owner was subject because it did business in Louisiana through the LLC.

The corporation had to include the value of its LLC investment in its taxable base and attribute the appropriate share to Louisiana using property and revenue ratios.

Different treatment for income and franchise tax

The ruling treated the LLC as disregarded for income tax, so its assets, liabilities, income, deductions, and credits appeared with the corporate member. For franchise tax and other non-income taxes, La. R.S. 12:1368 treated the LLC like a limited partnership.

That meant the LLC was not the franchise-tax taxpayer. The corporation remained taxable under La. R.S. 47:601(A).

Louisiana attribution

Because the group operated inside and outside Louisiana, the corporation multiplied its base by the average of its property ratio and revenue ratio. The property ratio compared Louisiana property with total property; the revenue ratio compared Louisiana revenue with total revenue.

If the corporation carried one investment-in-LLC account, it allocated that investment and LLC revenue under the cited partnership regulations.

If its books instead showed the LLC's individual assets and liabilities, it combined them to determine the net investment, made any required valuation and surplus adjustments, computed the LLC's book income, and then applied the same partnership allocation rules.

Return schedules and documentation

The ruling said disregarded status applied only to income tax. Because Louisiana combined corporate income and franchise tax on one return, separate Schedule M computations would usually be needed: a combined balance sheet for income tax and a separate-company book balance sheet for franchise tax.

Supporting records had to show the corporation and each disregarded entity in separate columns, the combined totals, elimination adjustments, and the balances used on the returns. Detailed support for every elimination adjustment did not have to accompany the return, but had to be available if requested.

Common questions

Q: Did federal disregarded-entity status eliminate Louisiana franchise tax?

A: No. The ruling limited disregarded treatment to income tax.

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

A: No. It was treated as a limited partnership for that tax.

Q: Was the corporate member subject to franchise tax?

A: Yes, because it did business in Louisiana through the LLC.

Q: Did book presentation change the basic result?

A: No. It changed the mechanics for valuing the investment and calculating factors, but the corporation still applied the partnership allocation rules and computed its franchise tax.

Citations and references

• La. R.S. 12:1368 — state tax classification of the LLC
• La. R.S. 47:601(A) — corporate member's franchise-tax liability
• LAC 61:I.305.A.2 — valuation adjustments
• LAC 61:I.306.A.1.k.iii-iv — partnership revenue allocation
• LAC 61:I.306.A.2.h — partnership-investment property allocation
• LAC 61:III.101.C — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 02-018

Original ruling text

STATE OF LOUISIANA
Revenue Ruling
No. 02-018
October 22, 2002
Corporation Franchise Tax
Determination of the Corporation Franchise Tax of the Corporate Member of a Single
Member LLC

This revenue ruling addresses the determination of the corporation franchise tax owed by a
corporation that is the single member of a limited liability company (LLC).
In a widely used business structure, a corporation owns 100 percent of a Louisiana LLC. The
corporation conducts no activities of its own, and among its only assets is the amount invested in
the LLC. All of the group’s activities are conducted by the LLC, which does business within and
without Louisiana. Because it only has a single member, the LLC is considered to be a “disregarded
entity” for federal income tax purposes, and all of its assets, liabilities, income, deductions, and
credits are reported on the federal income tax return of its single member, the corporation. All assets
of both the corporation and the LLC are fairly valued on their books.
Under the provisions of La. Rev. Stat. Ann. § 12:1368, the LLC is treated and taxed for state
income tax purposes in the same manner that it is treated and taxed for federal income tax purposes.
For all other taxes, including the corporation franchise tax, the LLC is taxed and treated as if it was
a limited partnership. Because the LLC is treated as a limited partnership for corporation franchise
tax purposes under R.S. 12:1368, the LLC is not subject to the corporation franchise tax. However,
as a corporation that does business in the state, the single member of the LLC, the corporation, is
subject to the corporation franchise tax under La. Rev. Stat. Ann. § 47:601(A).
In order to determine the corporation’s franchise tax liability, the corporation must first determine
its taxable base. Because the corporation does business both within and without Louisiana, it must
then attribute the appropriate portion of that base to Louisiana by multiplying its base by the
average of two ratios, its property ratio and its revenue ratio. The property ratio is the corporation’s
Louisiana property over its total property, and the revenue ratio is the corporation’s Louisiana
revenue over its total revenue. The method the corporation will use to determine the amount
invested in the LLC for purposes of determining its base and its property factor and how the
corporation will determine its revenue from the LLC will depend on how the amount invested in the
LLC is reflected on the books of the corporation.
If the corporation reflects the amount invested in the LLC on its books as an investment in the LLC,
then the corporation will attribute the appropriate portion of this amount to Louisiana under LAC
61:I.306.A.2.h, allocation of property for investment in partnerships, and its revenue from the LLC
under LAC 61:I.306.A.1.k.iii-iv, allocation of revenue from partnerships. It will then calculate its
franchise tax liability in the same manner as any other corporation.
If the corporation’s books reflect the individual assets and liabilities of the LLC, then the value of
the amount invested in the LLC must be determined by combining the assets and liabilities of the
LLC as they appear on the corporation’s books. This result is subject to valuation adjustments under
LAC 61:I.305.A.2. The net amount of the LLC’s assets and liabilities is included in the asset

Revenue Ruling No. 02-018
Page 2 of 2

portion of the corporation’s books. Any adjustments necessary to balance the books will be made to
surplus. Once the value of the amount invested in the LLC has been determined, the corporation
will attribute the appropriate portion of this amount to Louisiana under LAC 61:I.306.A.2.h. The
corporation will then compute the net income of the LLC on a financial accounting (book) basis and
determine the Louisiana revenue to be included in the corporation’s revenue factor under LAC
61:I.306.A.1.k.iii-iv. It will then calculate its franchise tax liability in the same manner as any other
corporation.
Single-member LLCs are disregarded entities only for the purpose of income tax. Because the
Louisiana corporation tax return is a combination of income and franchise tax, in most instances
when a disregarded entity is included with the corporate taxpayer for income tax purposes, separate
computation of the property ratios (Schedule M's) will be needed for both income tax and franchise
tax. The income tax Schedule M will be a combined balance sheet with the disregarded entity. The
franchise tax Schedule M will be a separate company book balance sheet that will usually show an
investment in the disregarded entity. In addition, the taxpayer must provide adequate documentation
with the return for both income and franchise tax for the calculation of both the balance sheet and
the income statement. This documentation should show the income statement and balance sheet for
the taxpayer corporation and each disregarded entity in separate columns, the combined total of the
corporation parent and the disregarded entities, elimination adjustments and the balances used on
the tax returns. It is not necessary that the taxpayer provide supporting details for all elimination
adjustments, however, this information should be available if requested by the department.
Cynthia Bridges
Secretary
By:

Leonore Heavey
Attorney
Policy Services Division

A Revenue Ruling is written to provide guidance to the public and to Department of Revenue employees. It is issued
under Section 61:III.101(C) of the Louisiana Administrative Code to apply principles of law to a specific set of facts. A
Revenue Ruling does not have the force and effect of law and is not binding on the public. It is a statement of the
department's position and is binding on the department until superseded or modified by a subsequent change in statute,
regulation, declaratory ruling, or court decision.