California Screws Entrepreneurs...With Interest

[Col Hogan]

You can't make this stuff up...California decides to eliminate a tax break for entrepreneurs...retroactive to 2008...and to charge interest...

"As a way of encouraging entrepreneurs and investors to start companies in California, the state has long offered a tax deduction for those who start, invest in, and eventually sell companies.
This tax deduction allowed entrepreneurs and angels to exclude 50% of any gain on the sale of "Qualified Small Business" stock.
California's capital gains taxes are a high 9%, so the deduction reduced the capital gains rate to 4.5%. This encouraged the entrepreneurs to start and keep their companies in California, instead of decamping to lower-tax states.
And, for many years, California entrepreneurs and investors have taken advantage of the deduction.
But now the state has apparently decided that it no longer needs to encourage entrepreneurs to start and keep their companies in California.
So it is eliminating the tax deduction.
Far more startling, the state is eliminating the deduction retroactively--going all the back to 2008"

http://www.businessinsider.com/californ ... tax-2013-1" onclick="window.open(this.href);return false;

Ok, you want to eliminate a tax break...go ahead...but retroactive with interest???

How long till there's a lawsuit on that one???

[Ivytalk]

Unfortunately, Ivytalk Steinmetz isn't licensed in Cauliflowernia!

[SuperHornet]

Ok, you want to eliminate a tax break...go ahead...but retroactive with interest???

How long till there's a lawsuit on that one???

That has the feel of an ex post facto law. If that's the case, it'll never stand up in Constitutional court.

[JohnStOnge]

Apparently California's budget situation has improved since voters approved Jerry Brown's tax increase plan:

http://latimesblogs.latimes.com/califor ... eport.html" onclick="window.open(this.href);return false;

So I imagine those who favor tax increases are encouraged and willing to continue the trend. It'll be interesting to see what happens over the next 10 years or so.

[houndawg]

9% capital gains tax is high?

[danefan]

9% capital gains tax is high?

High for a state income tax.

Retroactive taxes are terrible policy which should be overturned.

[Ivytalk]

Ok, you want to eliminate a tax break...go ahead...but retroactive with interest???

How long till there's a lawsuit on that one???

That has the feel of an ex post facto law. If that's the case, it'll never stand up in Constitutional court.

Not even in an unconstitutional court!

[SDHornet]

CA loves to chase businesses away. With a Dem super majority in the state legislature, Prop 13’s days are numbered and then they’ll come after homeowners.

[GannonFan]

9% capital gains tax is high?

High for a state income tax.

Retroactive taxes are terrible policy which should be overturned.

Agreed on both accounts - a 9% capital gains state tax is absurdly high. I think only Hawaii and DC have higher marignal tax rates on capital gains. The average is something around 4%-5% at the state tax level.

And yes, retroactive taxes are insidious and really kill future growth (and while they are ex post facto they are not unconstitutional - I think the Constitution's ex post facto restriction is on criminal and penal laws, not on something like tax rates). I mean, who would want to set up in a state where the tax rate going five years back can just magically increase? It's one thing to have to worry about planning for the future, but now you need to set aside resources to plan for things that may change in the past now too. Best to just not set up shop there and instead work in a place where there isn't a track record of doing this.

[SuperHornet]

CA loves to chase businesses away. With a Dem super majority in the state legislature, Prop 13’s days are numbered and then they’ll come after homeowners.

Unfortunately, I fear you are correct, SD....