Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) A limited
liability company may be a qualifying entity for welfare exemption purposes, if
it is wholly owned by a qualifying organization or organizations and if it
meets specific organizational and operating requirements.
(b)
(1)
Qualifying Organization. A qualifying organization is an organization that is
exempt under section 501(c)(3) of the Internal Revenue Code or under section
23701d
of the Revenue and Taxation Code and that qualifies for exemption under section
214
of the Revenue and Taxation Code. A limited liability company is a qualifying
organization if all of its owner organization(s) (referred to as members) are
exempt under section 501(c)(3) of the Internal Revenue Code or under section
23701d
of the Revenue and Taxation Code and qualify for exemption under section
214
of the Revenue and Taxation Code. Each member shall have a valid, unrevoked
letter from the Internal Revenue Service or the Franchise Tax Board, stating
that it qualifies as an exempt organization under section 501(c)(3) of the
Internal Revenue Code or under section
23701d
of the Revenue and Taxation Code.
(2) Qualifying Organization. A qualifying
organization is also a government entity that is exempt from property taxation
under section
3 of Article XIII of the
California Constitution, as to property owned by the state under subdivision
(a), or as to property owned by a local government under subdivision (b), or as
to property used exclusively for public schools, community colleges, state
colleges and state universities under subdivision (d). A limited liability
company is a qualifying organization if one or more of its members is a
government entity, as specified, and all other members are exempt under section
501(c)(3) of the Internal Revenue Code or under section
23701d
of the Revenue and Taxation Code and qualify for exemption under section
214
of the Revenue and Taxation Code.
(c) Organizational Requirements. A limited
liability company wholly owned by qualifying organization(s) may satisfy the
organizational requirements for purposes of the exemption, if its articles of
organization or the equivalent legally recognized formative document under the
laws of the jurisdiction where the entity is formed meets all of the following
requirements:
(1) A specific statement shall
be included which limits the activities of the limited liability company to one
or more exempt purposes, as specified in section 214. This requirement may be
satisfied by a clause stating that the limited liability company is organized
and operated exclusively for one or more exempt purpose(s) as specified in
section 214 [religious, hospital, scientific or charitable].
(2) The organizational language shall specify
that the limited liability company is operated exclusively to further the
exempt purpose(s) as specified in section 214, of its member(s).
(3) The organizational language shall require
that each member of the limited liability company be a qualifying organization,
as specified in subsections (b)(1) or (b)(2) of this rule.
(4) The organizational language shall
prohibit any direct or indirect transfer of any membership interest in the
limited liability company to any nonqualified person or entity.
(5) The organizational language shall provide
an acceptable dedication clause. This requirement may be satisfied by a clause
that irrevocably dedicates the property to one or more of the exempt purposes,
as specified in sections 214 and 214.01.
(6) The organizational language shall provide
an acceptable dissolution clause. This requirement may be satisfied by a
clause, which specifies that upon dissolution, all assets shall be distributed
to an organization(s) organized and operated exclusively for exempt purposes,
as specified in section 214, and which has established its tax exempt status
under section 501(c)(3) of the Internal Revenue Code, or under section
23701d
of the Revenue and Taxation Code.
(7) The organizational language shall require
that any amendments to the limited liability company's articles of organization
or the equivalent legally recognized formative document under the laws of the
jurisdiction where the entity is formed and to the operating agreement, be
consistent with section 214.
(8)
The organizational language shall prohibit the limited liability company from
merging with, or converting into, a for-profit entity.
(9) The organizational language shall require
that the limited liability company not distribute any assets to members who
cease to be organizations described in section 214.
(d) The limited liability company shall
represent that its articles of organization are consistent with state law
governing limited liability companies and are enforceable at law and in
equity.
(e) Operating Requirements.
A limited liability company wholly owned by qualifying organization(s) may
satisfy the operational requirements for purposes of this exemption, by
operating in accordance with its articles of organization or the equivalent
legally recognized formative document under the laws of the jurisdiction where
the entity is formed.
(f) The
limited liability company shall file with the Board a copy of certified
Articles of Organization or the equivalent legally recognized formative
document required under the laws of the jurisdiction where the entity is
formed, and any certified amendments and restatements.
(g) In the event that a member of the limited
liability company ceases to be a qualifying welfare organization, as described
in section 214, the limited liability company shall report this information to
the assessor and the Board no later than the next annual filing deadline for
the welfare exemption. Such event will serve to disqualify the limited
liability company and its property from the welfare exemption.
1. New
section filed 10-18-2004; operative 1-1-2005 (Register 2004, No. 43). For prior
history, see Register 96, No. 1.
Note: Authority cited: Section
15606(c),
Government Code. Reference: Sections
214,
214.01,
214.8,
254.5
and
254.6,
Revenue and Taxation Code.
