California Slaps Small-Business Investors with Back Taxes

California Slaps Small-Business Investors by eliminating retroactively a popular tax break.

Just as California Governor Jerry Brown is fending off attacks from Texas Governor Rick Perry, who’s luring California companies to Texas, the Franchise Tax Board has dealt a serious blow to small-business investors. For two decades, California has offered a significant tax break on capital gains to people who make money by investing in companies that have less than $50 million in assets and keep at least 80 percent of their payroll and assets in the state. The break cuts the capital gains rate from 9 percent to 4.5 percent.

A recent court ruling invalidates this benefit, claiming that it interfered with interstate commerce. The agency responsible for tax collection, the FTB, has decided that as a result of this ruling they want to collect back taxes from 2,000 investors who took advantage of the tax break since 2009. The total amount they claim is due exceeds $120 million plus interest (yes, they want the interest too).

This sets an extremely dangerous precedent. Eliminating the tax credit retroactively in effects punishes people who made decisions that benefited California. I doubt many of those 2,000 investors will look kindly again on California and may consider other states that are quickly becoming hubs for startups and small-business growth.

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About small business finance expert Mike Periu

Mike Periu has experience in small business finance. He founded Proximo, LLC a company that offers consumer and small business training services focused on technology and money.
Mike Periu teaches individual empowerment through entrepreneurship and financial literacy. He has appeared 500+ times on television and radio. Visit the Reach and Media pages of his website to learn more about where he has appeared.
You can read more of Mike’s articles on his blog or at American Express OpenForum, Yahoo! Finanzas and the Huffington Post.
Mike has a degree in International Business and Finance which he received at Georgetown University in Washington, DC. He received a Fellowship from the Kauffman Foundation for the Labs for Enterprise Creation program in Kansas City.

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