Small business owners and investors drive growth and job creation in the state of California. The recent cancellation of the Qualified Small Business tax program and the resulting retroactive tax on more than 2,500 entrepreneurs and investors wrongly punishes the very people who create opportunity for the citizens of the state. This policy decision sends a signal that new business development is not welcome or supported in California. We need your immediate support to rectify this wrong.
We share your commitment to maintaining California's economic leadership. As entrepreneurs, investors, and innovators, we are however writing to express our serious concern that a recent administrative change to the tax laws will negatively impact continued investment in the start-ups and small businesses crucial to the growth and leadership of our state.
A recent ruling by the California Court of Appeals deemed the deferral provision of the state's Qualified Small Business (QSB) stock tax law unconstitutional. This harmful decision was compounded exponentially by the Franchise Tax Board’s administrative decision in December 2012 to cancel both the exclusion and deferral provision of the law and to seek a five-year retroactive clawback of taxes that had been previously excluded and deferred by entrepreneurs and investors throughout the state and to assess interest on those amounts.
The economic impact to the 2,500+ affected investors, entrepreneurs, and business owners is devastating with many of them facing sudden tax bills in excess of $100,000. But the implications to the business community in the state of California may be even more serious.
This action wrongly punishes law-abiding, productive business owners who created tremendous employment opportunities, tax revenue, and long term growth for the California economy. Retroactively seeking taxes and interest from these individuals is bad policy and sends a signal that new business development is not welcome or supported in California. This action also sends a strong message to the business community that they cannot trust California tax law or its institutions of government to provide a stable environment to launch and grow new companies.
We therefore urge your decisive leadership on this issue. We ask you to meet with affected taxpayers at your earliest convenience. We urge your office to do whatever it can to legislatively or administratively restore a tax policy that encourages investment and job creation. California needs to maintain its leadership as a state where innovation thrives and is encouraged. We should reward the entrepreneurs who take on risk, overcome the significant odds, and become critical to the economic engine of our State. Indeed, encouraging investment and incentivizing business owners and investors for starting and growing their businesses in California was exactly the intent of the original QSB tax incentive.
As business leaders who push the edge of innovation, we implore you to restore a tax policy that promotes and supports the endeavors of entrepreneurs and fuels the economic engine of our state. And we stand ready to do whatever we can to work with your office and the legislature to achieve that end and continue California's return to economic vitality.