Only in California: When Tax Breaks Become Tax Liabilities

It doesn’t get much more absurd. Over the last five years the state of California handed out over $120 million in tax credits and incentives for specific small business startups. Guess what? The state’s Franchise Tax Board is asking for all that money back. Only Sacramento could devise a scheme to change the rules and sock it to job creators.

Over 2,000 small businesses are now being levied with hefty tax bills – some as high as $250,000 – for having taken advantage of a duly passed tax incentive program. At issue is a tax incentive program put in place by lawmakers that was recently declared unconstitutional by the courts. After the court decided the incentive programs were unconstitutional by state standards, the Franchise Tax Board decided that they wanted to grab the revenue in forgone taxes.

This begs the question, if it suits a state to clawback a tax liability it previously gave up when can you trust the state not to do it again, and again, and again?

Brian Overstreet , a business owner in Healdsburg,CA business owner, is leading in a statewide effort to stop Sacramento from presenting small business owners with retroactive tax bills totaling up to $150 million. The Huffington Post reports that some entrepreneurs expect to individually be billed for more than a half-million dollars in back taxes. Most maintain they already paid what they legally owed as long as five years ago. Officials for the state Franchise Tax Board insist they had no choice but to seek the extra money from roughly 2,500 taxpayers.

Townhall executive finance editor unearthed a chilling (and unsurprising) portion of a local CBS story that stated:

Investors who could be hit by the retroactive taxes did not want to go on camera, fearing they would become an easy target for the Franchise Tax Board.

Fearing retribution many entrepreneurs refuse to speak out. Not exactly an endorsement for investment in the Golden State. And governor Jerry Brown wonders why governors from other states around the country, notably Texas’s Rick Perry and Florida’s Rick Scott are so well received when they woo California entrepreneurs to come to their states.




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