One-sided and confused article. Whether this is an attempt to mislead readers or a misunderstanding by the writer, I don't know. But this is not a case of California choosing to implement an unhelpful policy. This is a case of California's previous helpful policy being found illegal because it violates the commerce clause; the FTB had no other choice but to impose the tax.<p><a href="http://www.mondaq.com/unitedstates/x/214234/Income+Tax/FTB+Issues+Notice+To+Retroactively+Deny+Qualified+Small+Business+Stock+Tax+Benefits+Amended+Returns+Should+Be+Filed" rel="nofollow">http://www.mondaq.com/unitedstates/x/214234/Income+Tax/FTB+I...</a><p><a href="https://www.ftb.ca.gov/law/Qualified_Small_Business_Stock_and_Cutler_Decision.shtml" rel="nofollow">https://www.ftb.ca.gov/law/Qualified_Small_Business_Stock_an...</a><p>The FTB did not 'take its ball and go home.' The Court told the FTB that it was not allowed to favor [EDIT: investment in qualifying] California corporations that way to begin with. An alternative would have been to extend the tax break to all companies that do business in California and send them a refund check for every year the QSB rule had been in place, but the FTB most likely doesn't have that much money available.
As a business owner this crap terrifies me. Washington State was looking at changing their tax code retroactively to get more money from Microsoft, luckily level heads (and I might presume, extensive lobbying) prevailed.<p>I can't plan today for what yesterday's laws will be tomorrow.
Can we just hurry up and address the real problem: California's constitution? We should just burn that flawed thing and start over. As I understand it, one of the major problems with California is that the reasonable-sounding idea that citizens should be allowed to amend the constitution through a ballot proposition has backfired and led to all sorts of special interests amending the constitution to protect their own interests by lobbying the public.<p><a href="http://ballotpedia.org/wiki/index.php/California_constitutional_convention#Reasons_for_a_convention" rel="nofollow">http://ballotpedia.org/wiki/index.php/California_constitutio...</a><p><a href="https://en.wikipedia.org/wiki/Constitution_of_California#Differences_from_other_constitutions" rel="nofollow">https://en.wikipedia.org/wiki/Constitution_of_California#Dif...</a><p><a href="https://en.wikipedia.org/wiki/California_Proposition_13_(1978)" rel="nofollow">https://en.wikipedia.org/wiki/California_Proposition_13_(197...</a>
I did a quick google and found a discussion of retroactive tax laws (applying to gift taxes in 2010):<p><a href="http://www.assetprotectionsociety.org/the-likelihood-and-enforceability-of-a-retroactive-tax-2/" rel="nofollow">http://www.assetprotectionsociety.org/the-likelihood-and-enf...</a><p>Potential arguments include due process, "wholly new tax", lack of notice, ex post facto (with the same caveat as mentioned here about applicability only to criminal cases), and the fifth amendment taking clause.<p>Conclusion: it's hard to fight.
A lot of the comments are characterizing this as a money grab by the state.<p>To me, it sounds more like the unintended consequences of a clever lawsuit and/or a poorly-crafted piece of tax-break legislation. People should be advised that California has a lot of clever lawyers who work to find and exploit holes in legislation.
Come to (western) Michigan. We have new corporate tax reforms that dramatically reduced liabilities (6% rate for C-Corps, flow-through taxation for LLCs and S-Corps, personal income tax rate of 4.3%), we have a 6% sales tax, low property taxes, very cheap housing (compared to much of the nation), well-educated workforce, and liberal gun laws (for the guy who wouldn't move to NY). Our 4.3% income tax rate is still lower than CA's QSB credit rate.<p>EDIT: Michigan's new corporate income tax also has an alternative rate of 1.8% for Qualified Small Businesses... those with net income under $1.3 million. If your corporation operates outside of Michigan and has no activity in Michigan itself, there is no corporate income tax.
I guess the way I see it is this. I imagine most startups don't have much profit, so therefore they won't pay much in taxes. If you are making a lot of profit and paying a bit more in taxes, it seems like the system is working. If these people are selling millions of dollars in stock options and complaining about having to pay more taxes on them, I have a hard time having sympathy. I'd love for my biggest problem to be figuring out how much more in taxes I owe on all the millions of dollars I made.
Am I missing something or has California crossed over into absurdity?<p>I don't understand why the VC and tech community in California stand for this stuff [1]. There should either be more lobbying by the seemingly powerful tech and vc community or mass exodus out of the state. I don't see either happening and I wonder why. Perhaps these things just take time.<p>Is CA killing the golden goose here?<p>[1] I am guilty too by living here at the moment, but I am a relative new comer to the state. The situation is completely baffling to me after being here for almost two years and am exploring other states at the moment.
To me this is a symptom of the twisted politics around taxation in the US. You have one very powerful group that is continually fighting to lower or eliminate taxes and another somewhat less powerful group that wants to bring in enough tax money to fund government services. One side cuts taxes or refuses to raise them and the other side finds new things to tax or other taxes to raise.<p>Normally such a tug of war is not an issue and is basically a natural consequence of a functioning democracy but in the US it has gone to the extreme.<p>Personally I blame the anti tax group. They seem to have no use for logic or evidence and only demand more cuts regardless of the previous ones or the consequences. They are refusing to provide the funds necessary to run a modern government.
The FTB had two choices: allow the deduction for every QSBS that didn't qualify due to the 80% rule, or retroactively impose the tax on all who claimed it. I'm sure somebody did the math, and found a huge liability for the state if all the previously non-qualified QSBS' were given the deduction. Keep in mind the FTB can't allow the status quo: if they allow the previous claimants keep the deduction, they must grant the same ability to the previously non-qualified. They chose then to disqualify the previous claimants and fight with them on a case-by-case basis, rather than pay.
On a related note - California capital gains tax is going up by 50% this year[1] (24.3% to 37.1%). That's a big jump and I haven't heard many people talk about it. In the short term it doesn't have much effect but in the long run it will reduce the amount of capital in the Valley available for angel investment and bootstrapping.<p>[1]<a href="http://jacobexmachina.blogspot.com/2013/01/the-fiscal-cliff-silicon-valleys.html" rel="nofollow">http://jacobexmachina.blogspot.com/2013/01/the-fiscal-cliff-...</a>
Serious question, can one "retroactively" move out of the state? Isn't it kind of bullshit I wasn't afforded the opportunity to move out of the state before I sold my stock?
I also found this section interesting...and I didn't know about it before:<p>"Per amendments in the new “fiscal cliff” law, if you started or invested in a QSB between September 28, 2010 and January 1, 2013 and ultimately sell stock under the federal QSB provisions, you’ll pay no federal capital gains tax, and in some states, no state taxes."
If we're all recommending states, then how about ND. Yeah it gets cold and hot, but we have a budget surplus, wicked fast fiber, and low taxes. Fargo(1) is an ok town (Microsoft has a place there).<p>1) Fargo in no way resembles anything from the movie of the same name. That would be MN home of high taxes and no off-sale after 8pm.
A lot of the discussion arounds this makes me think that the joke "The Republic of California" is not just true of CA, but for Washington, too. Is the talk of high taxes just limited to those two Western states or is it a bigger trend in other parts of the West Coast?
I'm not sure I would recommend Texas either. Use tax means you pay annual taxes on everything you own, plus sales tax on any affiliate deals; franchise tax will hit you hard even if your not making a dime because it's based on 'net worth' and not on profit.<p>It's a tough place to be.
we unfortunately don't have enough votes to influence their thinking on this. this is sleazy but not out of character for california. you can try shaming them with some media exposure (which is what you are embarking on) and hope it kinda works. good luck.
Some people in this world are just plain ridiculous. Who runs the country like this?<p>I really want to know who really thinks so stupidly while making/amending laws.
a prime example of fiscal policy going array. i hope our revered leaders figure out the fact that innovation is the key to the greatness that is America.