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California sending out tax bills amounting to $120 million to startup investors

California removes tax deduction, applies it retroactively to 2008
| Business, Financial & Legal News | Posted: Jan 31, 2013 12:07 am

Since 1993, California has had a tax deduction that allowed startup investors who invested in small businesses to not pay taxes on the money made from selling stock, as long as they reinvested that money in more small businesses. This deduction was aimed at encouraging angel investors and others to invest in small businesses.




Well, the tax break has been ruled unconstitutional because it benefits companies based in California over other states. This ruling came about when Frank Cutler sued back in 1998. The Franchise Tax Board has agreed to honor the ruling, and removed the deduction this past December, applying it retroactively back to 2008.


This means investors who sold their stock in a small business after 2008 will have to pay up taxes that they never thought they would. It's a bit unfair to apply the change retroactively, at least in my opinion, and it should have some consequences and ramifications that extend beyond just this $120 million in back taxes.


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