California Seeks Retroactive Taxes From Business Owners

A decision by California’s taxing agency to seek retroactive levies on small business owners has state taxpayers crying foul.

California’s Franchise Tax Board reinterpreted a tax break in December following a court decision striking down part of the code, and decided to bill anyone who had taken advantage of the law for the previous five years, Fox News reported.

A state appeals court had ruled unconstitutional a provision that required companies to maintain 80 percent of their workforce in California in order to qualify for the break.

Instead of consulting the state legislature, the board suspended the break entirely and is seeking back taxes totaling $120 million from some 2,500 business owners, Fox reported.

Many small business owners already saw their taxes rise when voters passed a ballot initiative in November raising rates on incomes over $250,000, with marginal rates rising to 13.3 percent from 10.3 percent for incomes over $1 million.

“How would you feel if you made a decision, which was made four years ago, you absolutely knew was legally correct and four years later a governing body came in and said, ‘no, it's not correct, now you owe us a bunch more money. And we’re going to charge you interest on money you didn't even know you owed,’” San Francisco entrepreneur Brian Overstreet told Fox.

Overstreet, who along with other investors sold Sagient Research Systems, said his retroactive tax bill was “well into the six figures.”