California Small Business Tax Repeal

California small businesses owners and their financial supporters are faced with a new tax as a result of a decision in August 2012 by the California Court of Appeal in Cutler v. Franchise Tax Board (FTB).

The Qualified Small Business Stock (QSBS) tax credit law, passed in 1993, was intended to spur investment in California startups and small businesses. The incentive allowed for the exclusion of 50 percent of capital gains earned from investments in businesses valued less than $50 million that have at least 80 percent of their staff and assets in California.

The issue came about when the Court ruled that the California QSBS deferral and exclusion was unconstitutional and the Franchise Tax Board administratively implemented the Court’s decision.  The court's decision made California's entire QSBS statute invalid and unenforceable.  This resulted in the retroactive taxation of thousands of investors going back to 2008.

As a result, entrepreneurs throughout the state are now facing exceptionally large tax bills.  This can run as high as tens of thousands to hundreds of thousands each.   It is estimated that the Franchise Tax Board is looking to recoup as much as $120 million in retroactive taxes.

The California Business Defense is leading the fight to change the law.  They strongly support SB 209 being championed by Sen. Lieu and Assemblyman Gorell.  They would like to have your support.  You can support them by emailing them by visiting their website and following the instructions.

Sources:
Senator Ted W. Lieu
QSBS
California Business Defense

By Jack River