CompTIA Opposes Retroactive Denial of Small Business Tax Incentive

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Downers Grove, Ill. February 8, 2013 - The following statement regarding opposition to the recent retro-active tax collection efforts following the decision of the California Court of Appeals in Cutler v. Franchise Tax Board can be attributed to CompTIA President and Chief Executive Officer Todd Thibodeaux and Dan Shapero, founder/CEO of ClikCloud and chair of the TechVoice Southern California Chapter.

TechVoice is a partnership of CompTIA, the Technology Councils of North America (TECNA) and participating regional technology associations. Collectively, it represents thousands of technology companies across the country employing millions of workers. TechVoice is dedicated to empowering and mobilizing the grassroots tech community to impact legislative and regulatory issues important to growth, innovation and job creation.

California tax law provided that gain on the sale of certain qualified small business stock (QSB) would be exempt from taxation under certain circumstances. One of those requirements was that 80 percent of both the company's payroll at the time the stock was purchased, and assets and payroll during the taxpayer's holding period must be inside the state.  However, in 2012, this 80 percent requirement was rendered unconstitutional by the California Court of Appeals in Cutler v. Franchise Tax Board. Now, California seeks to collect additional state income taxes from those who legally claimed this small business stock exemption for tax years not yet barred by the statute of limitations.This means that California will seek to tax certain sales of small business stock made as long ago as 2008, even though the owner properly claimed an exclusion for the year of sale. 

"Public policy had led both the federal government and states to encourage investments in small businesses. Such support is critical to our growth and prosperity as a nation," commented Shapero. "According to the Small Business Administration, small businesses represent 99.7 percent of all employer firms, employ half of all private sector employees and create more than half of the non-farm private GDP. It is essential to our national growth that we continue to encourage investment in small businesses, which are so critical to California's and our national economy." 

"The retroactive application of California income tax on these then-qualifying stock sales violates legislative intent, is unreasonable and unfair to law-abiding taxpayers and undermines the spirit of entrepreneurship that has long defined California," Shapero continued. "The legal intent of the tax incentive was to fuel that innovation. Many business owners made decisions based on the tax incentive and it is unfair for the state to go back retroactively. This decision by the state risks creating an anti-business tone for California."

Thibodeaux added, "We ask that California consider the adverse and unfair results of its collection of taxes on closed stock sale transactions, entered into with the understanding that the state would not tax that gain. 

"We urge California Governor Edmund G. Brown Jr. and his administration to support emergency legislative relief or a binding regulatory solution to preserve the intent of the legislature that enacted this small business stock exclusion, and protecting more than 2,500 taxpayers from owing more than $128 million in additional taxes. Any legislative or administrative solution should provide an exemption or grandfather provision for investors who made these valuable small business investments with assurance that future gains would not be subject to state income taxes" said Thibodeaux.

 
About CompTIA
CompTIA is the voice of the world's information technology (IT) industry. Its members are the companies at the forefront of innovation; and the professionals responsible for maximizing the benefits organizations receive from their investments in technology. CompTIA is dedicated to advancing industry growth through its educational programs, market research, networking events, professional certifications, and public policy advocacy. For more information, visit www.comptia.org, http://www.facebook.com/CompTIA and http://twitter.com/comptia.

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