Contractors Can Now Operate as LLCs
Beginning on January 1, 2012, the Contractor State License Board is authorized to issue a contractor’s license to a limited liability company (LLC). This will allow LLCs to render services that may be lawfully rendered only pursuant to a license, certificate, or registration.
Generally, LLCs are not allowed to be used for certain businesses subject to professional licensing requirements. However, as is now the case for contractors, amendments to the law allow specific businesses with licensing requirements to form and operate as an LLC. This change to the Business and Professions Code and the Corporations Code for contractors was enacted on September 30, 2010, in Senate Bill (SB) 392. For more information and other requirements for contractors, see SB 392.
It is important for contractors to know what their filing requirement will be should they decide to operate as an LLC.
For California income tax purposes, an LLC with more than one member will be classified as a partnership and an LLC with a single individual member will be classified as a sole proprietorship/disregarded entity, unless the LLC chooses to be classified as a corporation for income tax purposes. California treats the LLC, and its owners, in the same manner the LLC is treated for federal tax purposes.
LLCs classified as partnerships or disregarded entities and organize in California, register in California, or conduct business in California must file California Form 568, Limited Liability Company Return of Income. The return must be filed by the 15th day of the fourth month after the close of the LLC’s taxable year. They are also required to pay an annual tax of $800, and may be subject to an LLC fee based on total income from all sources derived from or attributable to the State of California. The annual tax is due by the 15th day of the fourth month of the taxable year, and is paid using FTB 3522, Limited Liability Company Tax Voucher. The estimated LLC fee is due by the 15th day of the sixth month.
In addition, an LLC filing Form 568, which has members who are not residents of California, must file FTB 3832, Limited Liability Company Nonresident Members' Consent with Form 568. FTB 3832 is signed by the nonresident individuals and foreign entity members to show their consent to California's jurisdiction to tax their distributive share of income attributable to California sources. The LLC must pay the tax for every nonresident member that did not sign a FTB 3832 and are subject to a withholding requirement on distributions of income made to nonresident members.
LLCs classified as a corporation and organize in California, register in California, conduct business in California, or receive California source income, must file California Form 100. The California Form 100 must be filed by the 15th day of the third month after the close of the LLC’s taxable year. The LLC will be taxed at the corporate tax rate of 8.84 percent and will be subject to a minimum tax of $800.