Controversial ruling costing business owners and investors millions in California

Small businesses may have to pay back taxes

SACRAMENTO, Calif. -  

A controversial ruling by the state tax authority means nearly 2,000 California small business owners have  to pay  millions of dollars in back taxes.

The franchise tax board recently changed  a 20-year-old law that gave many business owners and investors a tax break.

State lawmakers initially granted the tax incentive allowing investors in small business a break on capital gains taxes. But a state court recently  ruled it was unconstitutional.

That ruling has forced the investors to pay back four years of tax assessments plus interest.

One state lawmaker wrote a letter to the franchise tax board requesting the staff reverse the retroactive portion of the decision. And a prominent taxpayer advocate says the decision is unfair.

"The franchise tax board  went  back and has assessed liability for a number of taxpayers, going back several years. This has caught them really by surprise and I think is reflective of back  tax administrating in California," said Jon Coupal, president of Howard Jarvis Taxpayers Association.

Coupal says this move by the franchise tax board will likely drive more small businesses away  from the state. The franchise tax board would not comment.


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