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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."
Well that happens when the government is more interested in gun control than with economy.
That's unpossible! /looks at "Fire Prevention Fee" bill
And you expected something else from a state run by "progressives"? They never have enough of other people's money!
Retroactive taxes aren't particularly surreal. An example of surreal taxes would be if you had to submit your check to a giant who was growing out of the floor in a building that's melting.
So let's use the word correctly, please.
There's no -1 for "I don't get it."
People have been up in arms over ex post facto law, so why do they think they can get away with taxes? Granted, not all retroactive laws are unconstitutional. The tax law shouldn't have been in the books in the first place if it was unconstitutional, but we're not talking slavery here. Repeal the law, if you must, and call it even.
This is just a sad attempt at increasing state revenue
If computers were people, I'd be a misanthrope.
How far back are they permitted to go? What stops them from going back 20 years or more? I would think there would be some ex post facto equivalent for civil issues.
In other news, much of the national deficit is due to this pathetically disorganized, in the red, severely overbudget, bloated state. Why do businesses continue to flock there? There's plenty of good homes along the east coast. Texas has a healthy tech sector. Even in the flyover state of Minnesota you can find plenty of talent. WHY CALIFORNIA PEOPLE? WHYYYyyyyy? Even Mexico didn't fight that hard for it -- they practically gave us the desolate, flood-prone, earthquake-prone, mudslide-prone, forest fire-prone state. How many hints does nature have to give a business before it takes the hint? :/
#fuckbeta #iamslashdot #dicemustdie
I can't believe how any freedom-loving country can permit retroactive anything.
How can anyone plan anything when the threat of a retroactive change takes place?
I'm god, but it's a bit of a drag really...
Place your bets on how many people will comment on "ex post facto" laws without actually knowing the slightest thing about them.
An interesting snippet from the above link:
Besides, it's only $150 million. A drop in the bucket, relative to the tech industry as a whole.
Have you read my blog lately?
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:
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...
I've fallen off your lawn, and I can't get up.
retroactive plan, dubass.
+m
Still want to live in California?
Hey let's push the state into exempting out of state companies so we can get the exemption too. Oh crap, we just screwed it up for everyone and wasted millions in legal fees for a ruling that will get us nothing. Who could have ever guessed California would take the money grab option?
This isn't a retroactive law. This is invalidation of a law by a court. California basically created a tarrif to promote local buisnesses. States are not allow to create terrifs. California had two options. They could send money to every out of state buisness that was damage by the tarrif. Or they could undo the benifit the in state buisnesses recieved. California is broke so they did the second thing.
Oh, wait. This is TAX law. The IRS can do pretty much anything they want; even the state IRS.
So some rich investors use some illegal tax break to make even more money for themselves and now that it's declared illegal they have to pay a more fair share of taxes. Who gives a shit? It's just more whining from the rich.
But why stop there? Let's retroactively declare more bullshit tax breaks illegal... so the rich have to pay their fair share on their "grandson of BOSS" investments instead of the laissez-faire share they've been paying? Good. Make it so.
Besides, it's only $150 million. A drop in the bucket, relative to the tech industry as a whole.
Would you say the same thing if it applied to you?
Yes it applies to us because they'll just pass the cost on to all of us. And since I'll never notice it, I don't give a rat's ass either.
Ex post facto laws are expressly forbidden by the United States Constitution in Article 1, Section 9, Clause 3.
People will sue - and this will go to federal courts... The question is will it make it to SCOTUS.
/me sips his coffee and ponders a new sig...
I am ashamed of my state government and the populace that elected it. As soon as I have enough money to be worthy of Franchise Tax Board's notice, I'm fleeing to a free state.
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.
I'm moving to France!
Have gnu, will travel.
Elections have consequences.
What is unconstitutional about a state providing state tax incentives for its residents to invest in companies within that state? There is no interstate commerce going on there. I know the federal government thinks absolutely everything is interstate commerce, but it doesn't make it true. It's allowing the federal government to regulate the tax policy of a state.
Just retroactively move out of state. Maybe file for a refund for the taxes you DID pay.
This is why most of the West is doomed. Why the hell would anyone start up a business in California if they pull stunts like this? Indeed, if you've got an online business with no geographical boundaries, why even host it in the US/Europe? Why not host it in a country that actually -wants- productive citizens?
In economic terms, a tax is basically a government's way of saying, "we don't want you to do that". An income tax is basically saying, we don't want you to work. A payroll tax is basically saying, we don't want you to hire people, etc.
Stuff like this will only hasten the demise of the US.
Taxation is legalized theft, no more, no less.
GTFO of that hell hole.
When the US debt bomb finally detonates it will be la-la land that breaks off first. Then you'll be living in Mexico 2, the new kleptocracy.
"One more victory like that and we're really finished."
Maybe he should have sued California for allowing ANY exemptions or deductions at all...
When I read about this I was furious. I thought I'd get hit; luckily I was off by a year so I'm safe. I was so ready to take a gun to Sacramento. It seems almost every year the Franchise Tax Board tries to screw me with some denial of whatever that takes me and my accountant time and money to protest. I swear the FSB is staffed with Fascists.
The Obama-loving pigs in Silicon Valley should be stripped of their last dollar by the govt.
You voted for it.
So I'm a true and blue keynesian and believe that we need higher taxes on certain things, including corporations. But retroactively taxing tech companies in California, or increasing the tax burden of tech companies in California is plain stupid. The whole point of modifying tax policy is to shape the type of economy you want in your region, state, country, etc. If you want cheap indentured labour, you do low corporate and rich people taxes and high personal taxes for the poor and middle class. If you want your tech industry in California, you give them huge tax breaks so they don't have to worry about taxes when they're trying crazy ass ideas that may end up being super successful. If they fail the first time, they can try again, and not have to worry about taxes. It makes the state act as an incubator and is one of the reasons Silicon Valley exists.
Taxing tech companies is dumb because unlike Oil companies (which should be taxed more), they are not extracting natural resources the demos will never get back, they are a knowledge economy producer, which is often pure economic gain with (relative to other industries) few negative externalities.
Right now I'm outside of the USA and I do not know how this bizarre court ruling gonna affect me.
And I am not alone in this --- many people that I know started our respective careers and business ventures in the Silicon Valley, before moving on to something larger and better elsewhere.
There are two groups of people who will benefit from this ruling - the attorneys (particularly the tax attorneys) and the accountants.
Muchas Gracias, Señor Edward Snowden !
Nashville welcomes you with open arms.
Here is the relevant part from the Appeal Court opinion:
Plaintiff asks us to hold that a refund is the only proper remedy in this case, under the authority of McKesson Corp. v. Florida Alcohol & Tobacco Div. (1990) 496 U.S. 18 [110 L. Ed. 2d 17, 110 S. Ct. 2238] (McKesson). In McKesson, the high court held that “[i]f a State places a taxpayer under duress promptly to pay a tax when due and relegates him to a postpayment refund action in which he can challenge the tax's legality, the Due Process Clause of the Fourteenth Amendment obligates the State to provide meaningful backward-looking relief to rectify any unconstitutional deprivation.” (McKesson, supra, 496 U.S. at p. 31, fn. omitted.) McKesson identified three ways to provide the “‘clear and certain remedy’” required for an unlawful tax collection. (Id. at p. 39.) These were (1) “refunding to petitioner the difference between the tax it paid and the tax it would have been assessed were it extended the same rate reductions that its competitors actually received”; (2) “assess[ing] and collect[ing] back taxes from petitioner's competitors who benefited from the rate reductions during the contested tax period”; and (3) “a combination of a partial refund to petitioner and a partial retroactive assessment of tax increases on favored competitors, so long as the resultant tax actually assessed during the contested tax period reflects a scheme that does not discriminate against interstate commerce .” (Id. at pp. 40–41.) In this case the statute of limitations prevents the state from collecting additional taxes from other taxpayers who benefited from the unconstitutional deferral provision.
Under this portion of the opinion the Franchise Tax Board can not do nothing. They are required by this opinion to level the playing field. The Franchise Tax Board has three options;
1. Refund the tax to him and every other other person that was denied or didn't file because they did not qualify.
2. Retroactively tax everyone
3. A combination of partial refunds and partial taxes opening up even more litigation.
Option 1 is bad because the state could loose a lot of revenue. Option 3 is bad because the state loses revenue and spends more on litigation. Option 2 is viable as it already falls under the process of filing and adjusted tax return. By requiring the Board to level the playing field the court threw a wrench in the works.
why start a business in place with child labor laws and any workers rights.
Why not open in North Korean where they have life long work / prison camps.
Yea, fixed your title for you. Guess it's the pot calling the kettle black then...
That shows the past year. One. Single. Numero Uno. After severe and numerous budget crisis California has cleaned up its act, mostly due to threats of severe economic sanctions if it didn't fix the problem _now_. It doesn't erase decades of debt overnight. Look at it this way: You suddenly get a good job that pays twice as much as your last job. How many years does it take to catch up on all that credit card debt and stuff you accumulated up until now? Answer: A long time.
We're paying for past indiscretions of California and will be for some time to come. But hey, congratulations on the new job.
#fuckbeta #iamslashdot #dicemustdie
A race to the bottom in taxes and wages should turn out great! Might want to check out those "jobs" that are being created in Texas; the majority are low paying service oriented i.e. mcdonald's and strip malls.
I'm sure California's $427 billion public debt has NOTHING to do with this.
Positive!
http://www.usdebtclock.org/state-debt-clocks/state-of-california-debt-clock.html
-Styopa
This kind of shit is soooo FAR beyond merely shooting yourself in the foot, its more like pointing a gun at your foot, letting loose one round, blowing half your foot off, then blithly taking the gun, shooting the rest of the original foot off, taking a morphene shot to kill the pain, then turning the gun on your other foot, and doing the same thing again.. The old MontyPython skit with the guy getting his limbs shot off and continuing to taunt his attacker is kind of appropriate for California.. To keep ratcheting down on business like they're doing will ONLY work in a *completely* totalitarian country, one that includes barbed wire fences on the borders, landmines, tank traps, reminicient of the old "Iron Curtain".. When a business can weigh the pros-cons of staying/leaving and decides to pack it up and head for one of the states that are welcoming business, like Texas, f'instance, with no chance of being shot while going over the fence, the "geniuses" in Sacramento can only sit back and watch their tax-base leave the state.
Of course, in the world that the California liberal bureaucrat lives in, they never see this.. Up until the reality of the situation jumps up and bites them on the ass.. namely when they have 20+ million mouths on the government feed trough and ZERO tax-paying businesses.. I was born in California many moons ago, in what is now "liberal-ville", better known as the "City By The Bay"... such a lovely town, gone to hell by the Nancy Pelosi-liberals.. The wife and I saw the handwriting on the wall back in the mid 90s and moved to Las Vegas Nevada.. Best move we ever made.. With that, we had to fight with the State Franchise Tax Board for nearly 3 years after moving to prove to them we no longer had any income from the State.. It finally took a tax attorney to rattle their cage and get their b.s. stopped. I hate to think about ALL the hassle any business will get today when they move out of California... My thoughts are with them...
THANK YOU, Edward Snowden!! Americans owe you a debt of gratitude (whether they know it or not..)
Just apply some Obama logic, really it is "not a tax", because I said so.
Got Code?
Gee, what could possibly go wrong ?
Fuck business people hard, without lube, and expect them to
want seconds ?
Guess again, you stupid California tax-loving swine.
You will wake up one day and read about businesses in other states
which used to be located in your state.
You are fucking yourselves, and your constituents, and your future.
Nice job. What's next, will you tax the film industry so it leaves too ?
.
I mean - WTF; we've run a multi-billion $ deficit for the last decade. Gov Brown comes in, and in 1 term, turns things around. I can't see this tax as any kind of bad thing at all. The investors are going to go away? Where? are they going to relocate all the high-tech expertise and workers and their families that are located there and have put down roots since the end of WWII? Good luck with that. California's special for a reason, and it's California's workforce that attracts the money. Not the other way around.
These are my friends, See how they glisten. See this one shine, how he smiles in the light.
At the time the second amendment was debated, it was meant to prohibit the federal government from passing gun control laws as a means of controlling the states. But the person you are replying to is wrong in that he says "That right, as it exists today, is granted by a later court interpretation of the 2nd amendment." In fact, it was the fourteenth amendment which conferred those rights on individuals at the end of the civil war, to prevent them from oppressing their citizens. Of course, at the time they were thinking about ex-slaves, but anyone can be subjected to oppression by the government. It was a fairly recent court case in which the Supreme Court upheld that this was the case, but it's actually pretty hard to read the Fourteenth amendment any other way.
Yea, fixed your title for you. Guess it's the pot calling the kettle black then...
A perfectly validated prediction marred only by a spelling quibble and some snark from a nobody. I'm still way ahead of the game, sport.
Just make sh*t up after the fact and abuse people accordingly. If laws mean so little to the courts, why should anyone else care? It's not the courts that will bother you, it's the police, FBI, CIA, ATF and DHS with their guns, clubs, boots and tazers that will bother you. But don't worry, you're not living in a police state.
Pay up like the rest of us and more.
California is just an expensive liability.
Smart companies are copying Zappos and moving to Nevada.
Nevada has no state income tax, the biggest SuperNAP (internet hub) in the world, cheap land, cheap housing, a huge airport, rail lines, etc.
Nothing is "unpossible" when California wants to spend other people's cash!
This is EXACTLY what I expected from a state run by "progressives".
The state motto should be "taking your bacon to make pork"
One of the choices people are saying would've been better is removing the requirement that it be for California businesses only, but by doing that they would have had a huge number of California residents who sold a business anywhere filing amended returns as far back as possible to get the no-longer-limited credits.
fencepost
just a little off
Gov. Moonbeam is on a roll.
Now he wants California to become the 'Soviet' and he the 'Putin'.
How many more days will Gov. Moonbeam 'Putin' live ?
Bets being taken in Vegas.
!
Better beaches, skiing, Yosemite, San Francisco, Los Angeles, Big Sur, San Diego, forests, the Sierra Nevada, Lake Tahoe, amber waves of grain, purple mountain majesties, big trees, old trees, Venice beach, Hollywood, Volcanoes old and new, Death Valley, the highest and lowest places in the 48 states. Strawberries, Pistachios, Apricots, etc. The (variously) 6th to 8th largest economy in the world.
Somehow, DFW and Houston don't compare. Granted, here in California we have to surf using real waves, as opposed to ship wakes coming up from Galveston. Texas does have better caverns and probably more bats.
I've spent it all on hookers and cocaine...
This is a great injustice. How are those VCs supposed to finance their new natural slate bathroom and wine cellar. Food stamps? Champagne dreams are being shattered right now.
I have used that line as a visitor and a person without a car and it ain't as bad as that. The light rail/tram indeed does NOT connect to the airport but it DOES connect directly to the free bus service that is at the airport.
The tram has rather ample storage for bikes and the busses allow bikes to be stored on racks in front, so it is a better public transport system then exists in places like Amsterdam where you can't do this. BUT the area is HUGE and is made for cars. Roads are insanely wide and everything is spread out, so one line is hardly going to service the entire area you need to go as a resident. And getting fat Americans (they really are as fat as seen on TV) out of their gigantic cars is impossible.
It would have made more sense if they made it a tram, riding in say on the edges of the road for easy pedestrian access leaving the cars the remaining 200 meters or so in the middle of the road (they really are fucking wide) saving a LOT in construction costs. Instead they made it into a seperate track and that indeed means it doesn't really hit to many areas. Once you figured it out, it is also very very very very cheap (buy a multi-day ticket).
It was far better then I expected as a Dutch/Amsterdam person from the deep south but I can see how Americans hate it. You might actually have to walk! Going to the shops just a 10 minute walk away, my American host wanted to take the car... in beautiful dry sunny weather. WHY!!! (32 degrees celcius, in Holland when we get that maybe once a decade, the humidity is 80%) GO OUTSIDE AND ENJOY THE FUCKING NICE WEATHER AND LOOSE SOME TONS!
Oh and the metro in Amsterdam, not even the new line is. Despite the train service to the airport being rather error prone. Those in power don't use public transport so it rarely makes sense.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
Meant to end with the tidbit that the new metro line being build in Amsterdam also doesn't connect to the airport. Getting a direct bus service is also rather hard.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
They did this to me with student loans which when I signed the agreement were bankruptable. Then they retroactively changed the terms of my agreement, making the loans I had non-bankruptable. SCOTUS said they could do it since I wasn't going to be sent to jail over student loans.
I want a law that says anyone in any legislature state of federal from 1990 to today loses absolutely everything they now own and also gets stuck with an astronomical bill for malfeasance and/or being around the scene of the malfeasance, couching it in whatever legalistic terms we need to so that it passes constitutional muster, which, apparently isn't very hard.
Retroactive laws that take things away from people and magically transform them into lifelong debtors *on terms they never would have agreed to in the first place* are right up there with the pre-Magna Carta powers of King John.
Sorry to say that your only course of redress is to elect your own government and through your apparently unlimited legislative powers, extract your revenge.
There's no more discrimination there than there is by not charging California residents income tax on the income they generate from municipal bonds issued by the state of California, but going ahead and charging that tax against interest income investors derive from municipal bonds issued by other states. Which is the case.
But by making odd binds more attractive, it makes it easier for California to run up its debt, knowing that there are plenty of captive lenders on hand. Allowing a break for investors has no "plus" side for the treasury, just tax dollars that they could have gotten but didn't get. Guess it makes sense, but the retroactive idea is horrible. I'm not one that buys into all the uncertainty that republicans were espousing regarding taxes, but truly how can anyone in California (or anywhere else for that matter) feel comfortable with any financial decision - even if they spend considerable time energy and money researching it, if the government can retroactively make changes that go back to periods when your taxes have already been filed and paid?
"Freedom" also means lawyers being free to screw your butt over anything and everything. I suppose once you get to Canada, you'll be the first one to start fucking that place up as well like you did the US. Please stay where you are. At least the rest of the world knows where you people are if you stay at home, and has the possibility to avoid you.
News at 11.
Once you've taxed everything imaginable and had a government spending parade, it gets tricky to get more tax dollars out of people. What they really needed was the element of surprise. So...SURPRISE! You owe a shit ton of money, lol.
Connecticut has a history of reaching back in time to grab more revenue. The most recent was passed in June 2011, where starting in August, employers had to collect 'back taxes' from January.
This caused issues for a lot of families living paycheck to paycheck. Some employers didn't get the memo to begin collecting in August, and didn't start until November. Imagine barely making it, having to pay for heating oil, and all of a sudden you have to make up for 10 months of income tax.
http://www.cga.ct.gov/2012/rpt/2012-R-0021.htm
http://www.ctmirror.org/story/13455/state-income-tax-hike-hits-paychecks-starting-week
It isn't a dirty word and it should be allowed in many cases. Like this one.
I have a few friends that got hit with the retroactive (facebook) tax in California and they are leaving as well. They arent moving over taxes, just (like myself) they would rather their time, money and effort go towards a community that is better aligned with their beliefs.
to destroy the People's Republic of Kaliforniaistan. The Libtards and their tax policies are going to replicate their success of Detroit across the entire state.
Investors, entrepreneurs, and even the plaintiffs in the original lawsuit are up in arms about the FTB's notice
*shrug*
Be careful what you wish for. I feel bad for the investors that invested by one set of rules, and will now be retroactively taxed by another, but I won't shed a single tear for the jerks who brought the lawsuit and killed the tax break and are now going to have to cough up. Serves them right. They should have thought of that before trying to get the tax break nixed.
It would be a tragedy if you were to undermine your rule of law and slide into becoming a police state by subverting your constitution.
That ship has sailed, and gun control is just one aspect of it. Here's another example:
During the Civil Rights era, Whites committing crimes against Blacks were getting off free in jury trials. Juries understood that they had the power to nullify laws, and they used it.
The proper response? Legislation or if necessary an amendment specifying that nullification could not be used for some crimes. It could have been a short list. Perhaps murder, rape and battery would have been exempt, leaving juries free to nullify other laws with which they didn't agree such as 2 years for smoking a joint.
The actual response? Judges lying to jurors, telling them there's no such thing as nullification, and/or anybody who mentions it being disqualified for jury duty. See also, plea bargaining in which defendants are coerced into admitting guilt in order to avoid ridiculous jail time. Being tried by a jury of your peers? It almost never happens now.
For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?