Depending on where your fund operates and where its investors live, U.S. states may require the partnership to pay taxes or fees at the entity level, separate from the federal foreign withholding described in Why does my partnership need to make Foreign Withholding payments to the IRS?. State amounts fall into three categories:
- Annual entity taxes – a flat tax a state charges the partnership for doing business there (most commonly California's $800 annual tax).
- Nonresident partner withholding – tax a state requires the partnership to withhold on income allocated to partners who don't live in that state.
- Filing fees and minimum taxes – flat fees or minimum taxes some states charge for the partnership to file a return or remain registered there.
What is the California $800 annual tax?
California generally charges LLCs and limited partnerships that are considered doing business in, or registered in, California an $800 annual tax, payable to the California Franchise Tax Board (FTB). The tax is typically owed each year the entity exists in California, regardless of whether the fund earned any income.
- California's statutes and regulations are complex. We recommend consulting with your tax advisor as to whether or not your fund is considered doing business in the state. For more information, visit the FTB website at https://www.ftb.ca.gov/file/business/doing-business-in-california.html
- The obligation belongs to the partnership, not to individual LPs, so it is paid from fund assets.
Example: If a fund is managed by a general partner located in San Francisco, the fund owes California's $800 annual tax for each year it is active, even in years with no distributions or income.
What is state nonresident partner withholding?
Several states require a partnership that earns income sourced to that state to withhold (or pay estimated tax) on the share of that income allocated to partners who are not residents of the state. California, for example, requires withholding on distributions of California-source income to nonresident and foreign partners.
- Withholding is done by the partnership, not by individual LPs.
- The partnership reports the withholding to each affected partner on a state withholding statement (for California, Form 592-B), which the partner uses to claim a credit on their own state return.
- The amount depends on the state's rate and how much state-source income is allocated to nonresident partners, so it varies year to year.
Example: If a fund earns California-source income and has LPs who live outside California, the fund may need to withhold California tax on those LPs' share and remit it to the FTB.
What are state filing fees and minimum taxes?
Some states charge a flat fee or minimum tax for a partnership to file its state return or remain in good standing there. These are usually small fixed amounts and may be owed even when the fund has no income. The specific fees depend on each state's rules.
How are payments made?
Belltower (AngelList's fund administrator) calculates the amounts owed and remits payment to the relevant state tax authority on behalf of the fund. You do not need to pay the state directly – doing so would result in a duplicate payment.
Is this included in setup or admin fees?
No. State taxes and fees are contingent on the fund's circumstances (where it is managed, where its investors live, and what income it earns) and vary by year. They are not included in initial setup fees or standard administration costs.
What does this mean for LPs?
- Annual entity taxes and filing fees: These are expenses of the partnership and reduce fund assets; they are not attributed to any individual LP.
- LPs subject to state withholding: The withheld amount is a prepayment of that LP's own state tax. They will receive a state withholding statement (e.g., California Form 592-B) to claim a credit on their state return.
- Other LPs: No tax is withheld at the partnership level; they report their allocations of income on their own returns as usual.