Fighting California’s Retroactive Tax on Entrepreneurs and Small Business Backers


It’s all over!!!!  Today Governor Brown signed AB1412 into law, providing 100% relief from the retroactive taxes, penalties, and interest!

How We Did It:


Since 1993, the state of California has provided California’s small business owners and investors the ability to defer or exclude 50% of their taxes upon the sale of their businesses.

Late in 2012, the Francise Tax Board cancelled this program and began to retroactively tax those Californians who had supported those small businesses since 2008.

This 5-year retroactive tax serves as a punitive disincentive for California’s small business entrepreneurs and investors.  It violates legislative intent, is unreasonable and unfair to law-abiding taxpayers, and undermines the spirit of entrepreneurship that has long defined California.

Legislation has been introduced to overturn the retroactive tax.  The April 30th press conference to roll out the legislative fix featured members of the California Business Defense and can be viewed below:

IMPORTANT UPDATE 9/13/2013:   Over the past week, legislators in both houses have worked hard to created a solution that will provide the full retroactive tax relief sought by California Business Defense.  A bi-partisan coalition led by Senator Ted Lieu and Assemblymembers Gorrell, Gatto, and Bocanegra ultimately fashioned a deal to send two bills to Governor Brown for consideration.  SB209 (as detailed in full below) would provide for 76% relief and AB1412 would provide for full relief.  Other than that difference, the two bills are essentially identical.  Both bills passed out of the legislature with near unanimous approval on September 12, 2013.  California Business Defense is grateful for the efforts of the leadership in both houses for their continued support and looks forward to working with them to ensure that the Governor signs into law AB1412 to provide affected entrepreneurs with full relief from retroactive taxes, interest, and penalties.

Media Coverage of Bill Passage and Governor Brown’s pending decision:

LA Times

Editorial – San Diego Union Tribune

LA Business Journal



IMPORTANT UPDATE 9/4/2013:   On August 30, the Assembly Appropriations Committee voted unanimously (17-0) to move SB209 forward to a full Assembly floor vote, but did so without amending the bill back to provide for full retroactive tax relief.  We are pleased that the Assembly Appropriations Committee voted to move SB209 forward, but are disappointed that they failed to take the opportunity to provide full relief to affected taxpayers. While the current bill reduces the retroactive tax liability from approximately $120M to approximately $30M and eliminates retroactive interest and penalties, we continue to believe that individual taxpayers should not be held liable for the mistakes of the California legislature.  We will continue to work to attain the best possible outcome for affected taxpayers

IMPORTANT UPDATE 8/27/2013:   A delegation of California Business Defense members traveled to Sacramento to meet with key members of the legislature ahead of the Assembly Appropriations Committee final decision on SB209 slated for Friday August 30th.  The media covered the day with articles from Xconomy and others.

IMPORTANT UPDATE 8/12/2013:   The Assembly Revenue & Tax Committee voted 9-0 today to approve SB209 and move the bill to the Appropriations Committee.  The deadline for the Appropriations Committee to amend and approve the bill is August 30th.

IMPORTANT UPDATE 6/28/2013:   SB209 has moved to the Assembly for consideration.  Members of California Business Defense attended a series of meetings in Sacramento this week to meet with key Assemblymembers and their staffs.  The first committee meetings for SB209 is set for August 12, 2013 and it must be out of committees by August 30th.

IMPORTANT UPDATE 5/30/2013:   The California State Senate voted 34-3 today to approve the amended SB209 and send it to the Assembly.   California Business Defense will continue to work with the Assembly to fight for the best possible outcome for all affected taxpayers and small business owners in the state.

IMPORTANT UPDATE 5/23/2013:   The Senate Appropriations Committee voted 5-0 to pass SB 209 onto the full Senate floor for a vote.  As a condition for that approval, the committee insisted on a number of unfavorable amendments to the bill:  1) the exemption level for the 2008-2012 period would be reduced from 50% to 38%, 2) the QSBS exclusion program would terminate on 1/1/13 and not exist going forward, 3) that all penalties and interest would be waived on the amounts remaining due in retroactive taxes as a result of the amendments, and 4) that taxpayers would be allowed 5-year installment plans to make the payments on the retroactive taxes remaining due as a result of the amendments.  What this means is that if you have a retroactive tax bill and this bill is passed as amended, the total now due will be 24% of the original amount.  The amended language of the bill can be found by clicking here.  California Business Defense is continuing to fight for the best possible outcome for all affected taxpayers.

IMPORTANT UPDATE 5/17/2013  SB 209 was heard by the Senate Appropriations Committee on 5/13/13.   Nine members of California Business Defense testified on behalf of the bill at the committee hearing.

IMPORTANT UPDATE 5/1/2013:  The Senate’s Finance and Governance Committee approved SB 209 in a 6-1 vote and have passed the bill onto the Appropriations Committee.  Members of California Business Defense testified on behalf of the bill at the committee hearing.  For more information, click here.  You can view the SB209 press conference featuring members of California Business Defense by clicking here.

IMPORTANT UPDATE 4/4/2013:  Senator Ted Lieu (D-Torrance) has introduced amended language to Senate Bill 209 which proposes to fix the retroactive tax.  Co-authored by Assemblymembers Gorrell and Perea, SB209 will eliminate the part of the original QSBS provisions ruled unconstitutional and retain the balance of the original legislation.  If passed, this will wipe out the retroactive tax and will enable a form of the QSBS to remain on a go-forward basis starting in 2016.  For the current language proposed, please click here.

IMPORTANT UPDATE 2/28/2013:  The FTB announced this afternoon that they are delaying the mailing of the tax bills (the Notices of Proposed Assessments) for 2008 tax-year until April and that they will hold off on mailing the NPAs entirely if taxpayers sign a waiver of the statute of limitations.  This is a vitally important win for small business owners as it gives us the time to craft a lasting solution without the immediate threat of devastating tax bills.  Please review the details on the FTB’s FAQ page (see items marked “new”) and consult with your tax preparer as soon as possible about requesting a waiver if you are affected.

Despite these positive first steps, the issue is far from resolved.  We are here to fight this retroactive tax and ensure that California continues to encourage small businesses and remains a bastion of business and job creation for years to come.

We urge you to review the following media stories on this issue:

Xconomy – the blog post that sounded the alarm


Tech Crunch

San Diego Union Tribune

San Francisco Chronicle

LA Times

Bloomberg / Business Week

Business Insider

San Francisco Business Times

Silicon Valley Business Times

Editorial (San Diego Union Tribune)

760KFMB Radio Interview

Fortune Magazine

(Editorial) Orance County Register

Xconomy – article on 2/28 FTB decision

LA Times – article on 2/28 FTB decision

SD Union Tribune – article on legislation introduced to reverse FTB

KCRA Sacramento – TV interview

(Editorial) Riverside Press Enterprise

FOX News

Wall Street Journal

Sacramento Bee

Santa Rosa Press Democrat


Sacramento Bee (on SB209 passage in Senate)

CBS Sacramento

Fox Business TV Interview

Xconomy – Do or Die Moment

(Editorial) Orange County Register

(Editorial) Wall Street Journal – Lawless Taxation


See Brian Overstreet’s interview with Tech Crunch from January 2013  discussing these issues below.