A court ruling from December of 2012 could result in many small business investors in California owing large sums of money in back taxes from a practice now deemed unconstitutional. Five years ago many small business investors in California were promised a tax break. The investors were told that if they invested in specific types of businesses, they would receive a large tax deduction. Now these same investors are being told that they could receive tax bills that for up to $250,000 for deductions that were granted under tax laws that were on the books at the time the investments were made.
Of course there is an enormous uproar and battle over this ruling! Senator Ted Lieu (a Redondo Beach Democrat) said, “When we make a promise, we have to uphold it.” He went on to say that these people relied on the law the way it was written, which was they would receive a tax break if they invested in certain types of businesses. Unfortunately, now the Franchise Tax Board feels that they are due the money that was previously granted in tax deductions. Senator Lieu is in favor of passing a bill that will defend these small business investors.
Some feel that this new court ruling is potentially very damaging to small businesses. Ken DeVore, with the Federation of Independent Businesses, believes that people will naturally become skeptical of government if they comply with existing laws only to be penalized down the road. If this new ruling is upheld, it is calculated that 2,000 small business investors will have to pay back taxes totaling more than $120 million. The saving grace will be if Senator Lieu’s bill passes. As of this date, the Franchise Tax Board has had no comment on the matter.
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