Gov. Brown signs Sen. Lieu-backed bill to end retroactive tax on state entrepreneurs

October 04, 2013

New law will bring relief from California taxes, reinforce rule of law 

SACRAMENTO – In a move that brings signs of relief to job-creating entrepreneurs statewide, Gov. Brown today signed into law a Sen. Ted Lieu-backed plan that ends the threat of retroactive taxes on thousands of California taxpayers.
 
“Gov. Brown’s action reinforces the principle that California stands behind the rule of law,” said Lieu, D-Torrance, the leader of the effort to end retroactive taxes prompted by a court ruling. “It’s simply unfair to punish people for following the law even if it was later overruled. Gov. Brown and the California Legislature today are sending a strong message that we will stand by our word and address situations that are unreasonable and bad for business. I applaud Gov. Brown for fully and completely ending this job-killing, retroactive tax.” 
 
Brown’s action brings relief to thousands of taxpayers who had been notified last December that the state’s Franchise Tax board would retroactively assess those who claimed California’s Qualified Small Business Stock tax benefit. 
 
The issue stemmed from a decision by the California Court of Appeal, Cutler v. Franchise Tax Board, wherein the Court ruled that the California QSBS tax benefit was partially unconstitutional.  The 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.
           
Faced with a court ruling that found several aspects of the tax provisions to be in violation of the U.S. Constitution’s Commerce Clause, the FTB asserted that their only option was to enforce the Court of Appeals decision, ending the 20-year-old capital gains tax incentive. This resulted in the retroactive taxation of thousands of investors going back to 2008.
 
As a result, entrepreneurs throughout California faced exceptionally large tax bills – as high as tens of thousands to hundreds of thousands each.  It was estimated that the FTB was looking to recoup as much as $120 million in retroactive taxes.
 
The effort to end the retroactive tax was supported by numerous businesses and high-tech firms, including the California Business Defense; the California Chamber of Commerce; the California Healthcare Institute; the Silicon Valley Leadership Group; the Bay Area Council; TechAmerica; TechNet; Connect; Comp TIA; and the Orange County Tech Alliance.
 
The measures Brown signed, AB 1412 and SB 209, take effect Jan. 1, 2014.

For more, please visit Lieu’s Web site at the address below. 
 
Ted W. Lieu represents the more than 1 million residents of Senate District 28, which includes the cities of Beverly Hills, Carson, El Segundo, Hermosa Beach, Lomita, Manhattan Beach, Redondo Beach, Santa Monica, Torrance, West Hollywood and the Palos Verdes Peninsula as well as portions of Long Beach and Los Angeles including, Beverly Glenn, Brentwood, Cheviot Hills, Harbor City, Hollywood Hills, Marina del Rey, Mar Vista, Pacific Palisades, Playa del Rey, San Pedro, Venice, Westwood and Wilmington. See a district map HERE: For more, visit www.senate.ca.gov/lieu.

CONTACT: Ray Sotero
Communications Director
Sen. Ted W. Lieu, Senate District 28
Capitol Building, Room 4061
Sacramento, Calif. 95814
(916) 651-4028 office
www.sen.ca.gov/Lieu

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