Florida joins the Union with respect to LLCs.

• Author: Conti, Louis T.M.
• Position: Limited liability companies

On May 22,1998, S.B. 704 became law in Florida without the Governor's signature.[1] Although Florida was the second state to adopt legislation creating limited liability companies (LLCs) in 1982 and revised its LLC law in 1993, the use of LLCs in Florida had been substantially hampered because Florida taxed LLCs as corporations for purposes of Florida corporate income tax. Consequently, many lawyers advised their clients to use S corporations or partnerships to conduct business in the state. S.B. 704 is an important step in bringing Florida into the mainstream of state laws which govern LLCs. The bill provides that an LLC formed under Florida law or qualified to do business in Florida as a foreign LLC will not be subject to Florida's corporate income tax if the LLC is classified as a partnership for federal income tax purposes.

S.B. 704 as originally drafted was limited in scope and very simple. It sought to have both domestic and foreign LLCs taxed for Florida corporate income tax purposes based on the federal tax classification of the LLC. It did not anticipate single-member LLCs. It sought, therefore, to piggyback on federal partnership classification. The legislative intent was, and remained, direct:

It is intended that any limited liability company that is classified as a partnership for federal income tax purposes and formed under chapter 608 or qualified to do business in this state as a foreign limited liability company not be subject to the tax imposed by this code.[2]

Thus, Florida law taxing corporations, i.e., paragraph (e) of subsection (1) of F.S. [sections] 220.03 was amended to read: "The term `corporation' does not include proprietorships, even if using a fictitious name; partnerships of any type, as such; limited liability companies that are taxable as partnerships for federal income tax purposes ...." (italicized language added to chapter 220 by S.B. 704).[3]

Correspondingly, the Florida statute dealing with LLCs (Ch. 608) was amended to exempt certain LLCs from Florida corporate income tax. F.S. [sections] 608.471:

(1) A limited liability company classified as a partnership for federal income tax purposes and organized pursuant to this chapter or qualified to do business in this state as a foreign limited liability company is not an "artificial entity" within the purview of s. 220.02 and is not subject to the tax imposed under Chapter 220.

(3) For purposes of taxation under chapter 220, a limited liability company formed in this state or authorized to transact business in this state as a foreign limited liability company shall be classified as a partnership unless classified otherwise for federal income tax purposes, in which case the limited liability company shall be classified identically to its classification for federal income tax purposes.[4]

The...