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California's Surreal Retroactive Tax On Tech Startup Investors 514

Posted by timothy
from the do-not-pass-go-remit-$200 dept.
waderoush writes "Engineers and hackers don't think much about tax policy, but there's a bizarre development in California that they should know about, since it could reduce the pool of angel-investment money available for tech startups. Under a tax break available since the 1990s, startup founders and other investors in California were allowed to exclude or defer their gains when they sold stock in California-based small businesses. Last year, a California appeals court ruled that the tax break was unconstitutional, since it discriminated against investors in out-of-state companies. Now the Franchise Tax Board, California's version of the IRS, has issued a notice saying how it intends to implement the ruling — and it's a doozie. Not only is the tax break gone, but anyone who claimed an exclusion or deferral on the sale of small-business stock since 2008 is about to get a big retroactive tax bill. Investors, entrepreneurs, and even the plaintiffs in the original lawsuit are up in arms about the FTB's notice, saying that it goes beyond the court's intent and that it will drive investors out of the state. This Xconomy article takes an in-depth look at the history of the court case, the FTB's ruling, and the reaction in the technology and investing communities."
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California's Surreal Retroactive Tax On Tech Startup Investors

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  • by SlideRuleGuy (987445) on Thursday January 24, 2013 @06:44PM (#42684821) Journal

    And you expected something else from a state run by "progressives"? They never have enough of other people's money!

  • "Surreal"? (Score:5, Insightful)

    by MrEricSir (398214) on Thursday January 24, 2013 @06:44PM (#42684827) Homepage

    Retroactive taxes aren't particularly surreal. An example of surreal taxes would be if you had to submit your check to a giant who was growing out of the floor in a building that's melting.

    So let's use the word correctly, please.

  • by eksith (2776419) on Thursday January 24, 2013 @06:44PM (#42684833) Homepage

    People have been up in arms over ex post facto law, so why do they think they can get away with taxes? Granted, not all retroactive laws are unconstitutional. The tax law shouldn't have been in the books in the first place if it was unconstitutional, but we're not talking slavery here. Repeal the law, if you must, and call it even.

    This is just a sad attempt at increasing state revenue

  • by Dahamma (304068) on Thursday January 24, 2013 @06:57PM (#42684949)

    A law wasn't passed ex post facto and wasn't applied retroactively. A law passed years ago was declared unconstitutional, and the FTB is now making people re-file their taxes without its benefit.

    I don't agree with the ruling, either, but if you are going to throw around all of those legal terms make sure they are used correctly...

  • by bhlowe (1803290) on Thursday January 24, 2013 @07:07PM (#42685069)
    Compare taxes, infrastructure, business climate, and education of Texas vs. California. You tell me one metric, controlled by the government, that is better in California.
  • by Xeranar (2029624) on Thursday January 24, 2013 @07:10PM (#42685093)

    Ironically in this case it was a tax break created by progressives that was ruled unconstitutional. So your joke/stupid remark falls flat. Really this is a situation where large investors are taking it on the nose. As a progressive liberal I'm actually not OK with charging them retroactively unless this was acknowledged as up for debate previously and even then it should be executed without penalties.

    Cash grab or otherwise this is more or less an administrative issue to be rectified amongst the elite.

  • by roc97007 (608802) on Thursday January 24, 2013 @07:17PM (#42685153) Journal

    Yes, as opposed to conservatives who can fund their spending based upon sunshine and puppy farts.

    It's astonishing to me how many conservatives seem to believe that you don't need taxes to pay for services. You can just keep lowering taxes on the rich and wind up with more money than you had before.

    I'm neither, but in all fairness I think the idea is to spend less on services, or have fewer services.

  • by sjames (1099) on Thursday January 24, 2013 @07:21PM (#42685173) Homepage

    But it DOES create a tax liability that people had no reson to expect at the time it was (retroactively) incurred. So it is an ex post facto tax and it is unfair for the same reason an ex post facto law is.

    In a sense, it is an ex post facto law because it creates a legal obligation for actions in the past that did not carry such an obligation at the time.

    Otherwise, we accept that it is somehow Constitutionally OK to roll back a law that invalidated another law and so create a crime in the past where there was not one at the time (which is exactly when the prohibition on ex post facto laws is meant to prevent).

  • by rmdingler (1955220) on Thursday January 24, 2013 @07:26PM (#42685229)
    There's not a thing wrong with your math, and I live in one of these States, but the question of "better" should certainly be considered from every angle, as better, too, is in the eye of the beholder. If you're a Company looking to settle in an environment conducive to the corporate climate, Texas is your Huckleberry. If you'd prefer a place to raise your family that has the most stringent of environmental standards, California might well be your pick. Some times you feel like a nut, sometimes you don't. This is just me talking, but the coexistence of wide differences in opinion in one union is the very thing Country and marriage survive despite.
  • Re:This is why... (Score:5, Insightful)

    by Todd Knarr (15451) on Thursday January 24, 2013 @07:50PM (#42685459) Homepage

    As an employee, why would I want to work in states like Texas or Arizona that provide much less in the way of protections for workers? One of the reasons I like working in California is the laws that give me some leverage when dealing with employers, and protections and safety nets when said employer folds due to dumb decisions by management.

    And as an employer, why would I want to set up business in a state where my pool of workers is limited to the kind who all they have to offer is their willingness to accept that lack of protection? One of the reasons tech companies locate in California is that that's where the people they need/want to hire are. If I set up business in Texas or Arizona, I do so knowing that the best employees, the ones I'd most want to have, aren't going to be willing to relocate there. I can't see that being a winning strategy long-term.

  • by Rockoon (1252108) on Thursday January 24, 2013 @08:30PM (#42685809)

    If it doesn't work for Austin, then that is an Austin problem, not a Californian or progressive one.

    The philosophy that is opposed to central planning is not rooted in the belief that central planning always fails, but instead in the moral argument that when it does fail that some of the people that suffer could not opt out of that suffrage (tyranny of the majority), and now continue their suffering with no recourse (the momentum of the resulting bureaucracy.)

    Look no further than things like the TSA as prime examples of how the failures of central planning do not get corrected, that the suffrage of society continues in spite of the complete obviousness of the failure. Now consider failures that arent quite so obvious, and you get an idea of why some people hold a very strong philosophy against all central planning, even when sometimes the act of central planning seems like a great success.

  • by Cinder6 (894572) on Thursday January 24, 2013 @08:38PM (#42685909)

    Since extra taxes never seem to go toward the national debt, but rather to new pet projects (aka money sinks), I can't blame people for wanting lower taxes. I'm conservative, but I would vote for a tax increase if it were guaranteed to go exclusively toward curbing the national debt. Note also that I think we need to reduce our spending.

  • Re:Obama effect (Score:3, Insightful)

    by shutdown -p now (807394) on Thursday January 24, 2013 @08:57PM (#42686153) Journal

    In that sense, none of the amendments guarantee your right to anything - they're all subject to judicial interpretation, and all were interpreted, and sometimes re-interpreted (like the 1st) over time.

  • Re:Obama effect (Score:5, Insightful)

    by Runaway1956 (1322357) on Thursday January 24, 2013 @09:19PM (#42686363) Homepage Journal

    Define "assault weapon". There is not a single "assault weapon" available on the civilian market. You're yet another victim of liberal hype. Talk to a veteran. Talk to almost any veteran, from any service. Some sailors never handled an assault rifle, and maybe some airedales. All marines have handled them, and I think all army soldiers have.

    My own assault weapon was an M14. There is a little lever on the side that makes it what it is. That little lever switches the piece from semi-automatic to full automatic. That is the one determining characteristic of an "assault weapon". The bayonet lugs? I'll grant that it is probably unnecessary for civilians. Oversize magazines? Again, I'll grant that is probably unnecessary. But, those two features do not determine that the weapon is an "assault weapon".

    However - if you're able to pass a background check, and you're willing to pay the licensing fee, you can purchase a Thompson submachine gun, perfectly legal.

    Having spent most of an hour staring down the muzzles of several Thompsons while holding onto my M14, I'm here to tell you that it is a much more effective "assault weapon" than the M14 - or an M15 or an M16.

    I don't know how many Thompsons are currently held by private citizens in the United States. Funny thing, you don't hear of them being stolen, and used in criminal activity. Seems that the people who own them, keep them properly secured, and that common criminals just can't get to them.

    Maybe THAT is where legislation needs to be aimed. Make the owners of ALL weapons responsible for securing those weapons that they own.

    Nuts? There are plenty of nuts on both sides of the issue. None of the nuts want to address the real issues. Those issues include identifying whackos, kooks, and nuts who are likely to commit a mass shooting. Almost always, people step forward after a shooting, to inform the media that the shooter was some kind of mental case. Family and acquaintances are generally unable to "connect" with the guy. He's strange, weird, or whatever - often a "loner".

    The real issue here, is identifying such people, and getting help for them - OR, institutionalizing them, so that they most definitely CANNOT access weapons.

    But, boo-hoo-hoo - it violates some kind of "rights" if we start institutionalizing mental cases.

    Meanwhile, we continue to incarcerate people for possession of natural substances like marijuana. It's alright for corporations to profit from incarcerating perfectly safe people, but we don't want to violate any civil rights of genuinely dangerous people.

    This whole controversy borders on insanity.

  • Re:Obama effect (Score:5, Insightful)

    by uncqual (836337) on Thursday January 24, 2013 @10:11PM (#42686831)
    The United States Constitution and the Bill of Rights doesn't "grant" any rights to anyone. It itemizes those areas that the Federal government can intrude on the powers of the states and rights of individuals.

    The Bill of Rights was a compromise to shut up the anti-federalists. The Founders felt it was obvious that if the Constitution hadn't explicitly granted a power to the Federal Government, they didn't have it. The anti-federalists voiced concerns that it wasn't clear.

    The Founder's view seems evidenced in the level of detail in the Constitution listing exactly what the Federal Government can do, esp. in Article 1, Section 8.

    I don't know the history of Prohibition well, but now it seems rather quaint that as recently as 1919, folks thought it was necessary to actually amend the Constitution (the Eighteenth Amendment) to ban the "manufacture, sale, or transportation of intoxicating liquors". Now, we seem to accept that if the Federal Government wants to ban a substance nationwide, they can just do it with, at most, Congressional and Executive approval. How far we have fallen in less than 100 years.

    The Ninth and Tenth Amendments were meant to eliminate any possibility that people in the future would interpret the Bill of Rights as a complete list of rights held by the people and the states. As it turns out, these Amendments were obviously insufficient.

    Amendment IX

    The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.

    Amendment X

    The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

    Subsequent Amendments and SCOTUS interpretations/decisions (perhaps most notably the Incorporation Doctrine) have altered the landscape of course by imposing restrictions on states as to what rights they can abridge.

  • Re:This is why... (Score:4, Insightful)

    by Qzukk (229616) on Thursday January 24, 2013 @10:29PM (#42686967) Journal

    Do I want to live in a nanny-state where people try to ban toys in happy meals?

    Good point! You should come to Texas where we have a sky-daddy state where the government keeps you from buying cars on Sunday.

  • Re:Obama effect (Score:5, Insightful)

    by deimtee (762122) on Thursday January 24, 2013 @10:35PM (#42687019) Journal
    As an outsider reading it, I would say that the second amendment reads pretty clearly that the right to keep and carry weapons cannot be restricted.
    Any law in the USA that purports to control weapons should be unconstitutional.
    Arguing ethics, morals, need, danger or anything else in regards to weapons is (or should be) irrelevent.
    If you don't like that situation you should work to get the second amendment changed, not work to undermine the constitution.

    America has, in the past, been an example of freedom and rule of law that has inspired many people. It would be a tragedy if you were to undermine your rule of law and slide into becoming a police state by subverting your constitution.
    If you truly believe that the situation and weapons have evolved to the point where that amendment is no longer needed, or needs to be changed, then the constitution contains methods for amending itself.
    Please don't throw away the rule of law.
  • by serviscope_minor (664417) on Friday January 25, 2013 @08:33AM (#42689487) Journal

    In California, you use the entire village to raise an idiot, and all you've got to show for it is - an idiot.

    What would you rather happen? Would you prefer that the idiot was put down, or allowed to starve homeless on the street?

    Real men and women can indeed stand on their own.

    That's complete and utter bullshit. There is evidence[*] that even pre-human homonids cared for those incapable of looking after themselves.

    What would happen to you if you were struck down by a degenerative disease? What would happen if it happened in your 20's before you'd had the opportunity to save much money? What about your teens when you'd had no opportunity.

    All your bombastic talk about real men/women/small furry creatures from alpha centauri is just so much talk to make you feel superior about yourself simply because you happened to be lucky.

    "on your own", you say? And, you say that like it's a bad thing!

    Yes it it. Without society, life is short, nasty and brutal. Just look at the life expectancy of wild versus captive animals. You like to pretend you are self sufficient and superior, but the reality is you depend a lot on what society has to offer. You are not even remotely on your own but apparently you'r rather the less fortunate than you suffer in order for you to keep feeling superior.

    And your talk about personal freedom and drugs is a complete red herring.

    [*]Citation hard to find, but the original article was, IIRC about a homonid with an advanced case of degenerative bone disease. Basically the disease is not survivable in that state without external assistance because it makes the afflicted person unable to hunt or gather. This implies that other homonids fed and cared for the diseased one.

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