California's Surreal Retroactive Tax On Tech Startup Investors

waderoush writes "Engineers and hackers don't think much about tax policy, but there's a bizarre development in California that they should know about, since it could reduce the pool of angel-investment money available for tech startups. Under a tax break available since the 1990s, startup founders and other investors in California were allowed to exclude or defer their gains when they sold stock in California-based small businesses. Last year, a California appeals court ruled that the tax break was unconstitutional, since it discriminated against investors in out-of-state companies. Now the Franchise Tax Board, California's version of the IRS, has issued a notice saying how it intends to implement the ruling — and it's a doozie. Not only is the tax break gone, but anyone who claimed an exclusion or deferral on the sale of small-business stock since 2008 is about to get a big retroactive tax bill. Investors, entrepreneurs, and even the plaintiffs in the original lawsuit are up in arms about the FTB's notice, saying that it goes beyond the court's intent and that it will drive investors out of the state. This Xconomy article takes an in-depth look at the history of the court case, the FTB's ruling, and the reaction in the technology and investing communities."

Comments

Ex post facto?

[fyngyrz]

So. Does this make a crime of not paying taxes out of a situation where it was not a crime?

If so, it would seem to be ex post facto:

1st. Every law that makes an action done before the passing of the law, and which was innocent when done, criminal; and punishes such action.

2d. Every law that aggravates a crime, or makes it greater than it was, when committed.

3d. Every law that changes the punishment, and inflicts a greater punishment, than the law annexed to the crime, when committed.

4th. Every law that alters the legal rules of evidence, and receives less, or different, testimony, than the law required at the time of the commission of the offense, in order to convict the offender.

Seems to me they should just not pay, because there's no legal way to punish them for not paying.

Not that the supreme court has actually paid that much attention to ex post facto violations on either the federal or state level... real bunch of pants-shittingly stupid people in SCOTUS lately...

Exodus floodgates open just a little wider

[AlienSexist]

California (and New York) are hemorrhaging population and business. Often (but not only) heading to Texas according to numerous articles and analysis over the past year as well as the last census.

Texas appears to be the largest recipient of the migrations but so are Arizona and Florida. Coincidentally Texas was also named the 2012 Top State for business. Every few weeks I see more and more business headlines of companies (namely tech) moving to or starting a branch in Texas such as Apple, Facebook, PayPal, Catepillar and so on

There had been, however, some controversy over the years of TX Gov Perry's use of the Texas Enterprise Fund to woo companies to relocate. While the deal-landing results appear to be evident, some worry about the taxpayer cost, total incentive packages, and net gain of these deals. The fund seems to be perfectly suited to situations like this, where California tax laws cause some turmoil thereby increasing the opportunity to woo away industry. Recently Texas AG Greg Abbott has also been advertising to New Yorkers to move to Texas on account of gun control issues.

I wonder how long Texas can remain "Texas" if it becomes stuffed with people who are accustomed to living like Californians and New Yorkers.

You should know that ...

[Iconoc]

Elections have consequences.