February 4, 2023
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Editorial: Retroactive tax payments would punish job creators


The Franchise Tax Board’s decision to retroactively tax small-business owners who sold their companies smacks of a bureaucratic over-reach.

It is such as stretch that George Runner, one of the members of the state Board of Equalization who will ultimately rule on the measure, has urged his colleagues to overturn it.

To briefly recap, a California appeals court in December ruled that a partial capital gains tax exemption for small businesses based in California that were sold during the past few years was unconstitutional. The court ruled that the law violated the commerce clause of the U.S. Constitution because non-California companies could not claim the exemption.

Very shortly thereafter the Franchise Tax Board ordered these owners to pay an estimated $120 million in back taxes, even though they filed tax returns that fully complied with the law at the time.

In a letter to the Board, BOE member Runner urged that the ruling be overturned and in doing so kicked off a movement that has spread across the state. Behind Runner’s point is the fact that many of the Californians who are now being billed for back taxes have moved on to new companies and are trying to build new enterprises.

Forcing them to reach back into their pockets to pay retroactively is a punishment that lacks its own due process provisions and that appears to be arbitrary and capricious.

“As an elected official and taxpayer advocate, I cannot remain silent while state tax officials punish California taxpayers who in good faith followed our laws,” Runner wrote.

We find it difficult to remain silent on this issue as well. California must find ways to support and encourage its entrepreneurs, not punish them for creating jobs and obeying the law.