We analyze the impacts of the steady state assumption on inverse model parameter retrieval from biogeochemical models. An inverse model parameterization study using eddy covariance CO2 flux data was performed with the Carnegie Ames Stanford Approach (CASA) model under conditions of strict and relaxed carbon cycle steady state assumption (CCSSA) in order to evaluate both the robustness of the model's structure for the simulation of net ecosystem carbon fluxes and the assessment of the CCSSA effects on simulations and parameter estimation. Net ecosystem production (NEP) measurements from several eddy covariance sites were compared with NEP estimates from the CASA model driven by local weather station climate inputs as well as by remotely sensed fraction of photosynthetically active radiation absorbed by vegetation and leaf area index. The parameters considered for optimization are directly related to aboveground and belowground modeled responses to temperature and water availability, as well as a parameter (η) that relaxed the CCSSA in the model, allowing for site level simulations to be initialized either as net sinks or sources. A robust relationship was observed between NEP observations and predictions for most of the sites through the range of temporal scales considered (daily, weekly, biweekly, and monthly), supporting the conclusion that the model structure is able to capture the main processes explaining NEP variability. Overall, relaxing CCSSA increased model efficiency (21%) and decreased normalized average error (−92%). Intersite variability was a major source of variance in model performance differences between fixed (CCSSAf) and relaxed (CCSSAr) CCSSA conditions. These differences were correlated with mean annual NEP observations, where an average increase in modeling efficiency of 0.06 per 100 g C m−2 a−1 (where a is years) of NEP is observed (α < 0.003). The parameter η was found to be a key parameter in the optimization exercise, generating significant model efficiency losses when removed from the initial parameter set and parameter uncertainties were significantly lower under CCSSAr. Moreover, modeled soil carbon stocks were generally closer to observations once the steady state assumption was relaxed. Finally, we also show that estimates of individual parameters are affected by the steady state assumption. For example, estimates of radiation-use efficiency were strongly affected by the CCSSAf indicating compensation effects for the inadequate steady state assumption, leading to effective and thus biased parameters. Overall, the importance of model structural evaluation in data assimilation approaches is thus emphasized.