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Tax bills for California entrepreneurs raise hackles

It's commonly declared from California to the Right Coast that America's economic might rests in small business. Silicon Valley, with its myriad tech companies in sizes from start-up, small and mid-sized, knows this to be true. As do all the service industry companies that exist to support the people who run and work for those companies.

At the same time, there is the reality that California is struggling financially and looking for any new ways it can find to generate revenue. Accordingly, the state's Franchise Tax Board is taking aim at entrepreneurs and angel investors who once were the beneficiaries of the now-dead Qualified Small Business tax incentive program.

As many readers likely recall, a judge declared that 20-year-old program unconstitutional. In the wake of that finding, the Franchise Tax Board is taking steps to recapture some of the money that was credited under the program. According to reports, the board sent out notices recently to some 2,500 individuals. The goal is to collect nearly $130 million. That amount is what the entrepreneurs are estimated to have avoided in taxes from 2008 to 2012, plus interest.

Not surprisingly, the business people who are on the receiving end of the bills aren't too happy about it. Several of them have launched a lobbying effort to get the California legislature to block the Tax Board's efforts. Members say their key objective is to scuttle the board's attempt to recover the money on a retroactive basis.

Success in business is not a given. There are a lot of elements in the economic landscape that need to align for a new venture to survive and thrive. An attorney's counsel can be helpful in protecting business and personal interests.

Source: Silicon Valley Business Journal, "Thousands of entrepreneurs, investors hit with surprise tax," Luke Strangel, Jan. 31, 2013

  • Issues discussed here reflect areas in which our firm provides legal service. Learn more by visiting our San Jose business formation page.

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