The California Franchise Tax Board (“FTB”) has issued tax bills of a combined total of approximately $120 million to local small business owners. Over the past 20 years, California allowed a tax break that allowed companies to maintain 80 percent of their workforce in California. The break was claimed by over 2,500 business owners and stockholders.
The California Court of Appeals ruled the provision requiring companies to maintain 80 percent of their work force as unconstitutional. As a result, FTB changed its interpretation of the law and suspended the tax break entirely. FTB then began to issue tax bills to business owners and shareholders who claimed the tax break within the last five years.
Earlier this month, California lawmakers introduced legislation that seeks to prevent the FTB from issuing the retroactive bills. The FTB has announced a temporary delay in issuing Notices of Proposed Assessments. Jeff Gorrell, a member of the Republican Assembly proposed a bill that would prohibit the state from charging interest and penalties should similar occurrences arise in the future.
The high tax rates have caused some to conclude that California is now anti-business. There is currently no pending legislation that addresses the future of the tax credit which was established to promote job growth and investment. Proponents against the cancellation of the tax break believe that if it is not revived, the state’s economy will suffer dire consequences. Small business owners may consider taking their business elsewhere.
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