Well, I just got my answer and can't say I'm too delighted about it but at least the mystery is solved.  It seems that the client cannot get CA exempt status due to the fact that they charge members for water based upon usage rather than a flat fee so they have to file a  CA Corp return and a Federal Exempt return.

There is no way to generate a CA corp return in Lacerte's Exempt module AND there is no way to generate a CA corp return without a Federal corporate return so........... looks like I'm going to have to prepare the return twice....  with over 50 depreciable assets!!  

Not having fun in this tax office today ;-(