Tax board attack on business: Do governor’s appointees just tune him out?

Commentary

Jan. 18, 2013

By Chris Reed

bizarro.jerryThat California is extraordinarily hostile to business is accepted as a given by just about everyone who is an executive, manager or small-business owner in the state.  But Democrats and some in the media routinely challenge this assumption, and some genuinely seem to believe it’s nothing but a talking point used by business interests to gain undeserved favor.

I once saw a labor official even suggest there was something sinister or rigged about the CEO survey that comes out every year and always ranks the Golden State last in business-friendliness, as if there was a national conspiracy to put California down.

To a degree, Gov. Jerry Brown seems to believe that the business community’s gripes have some merit. So he’s taken to criticizing excessive regulation and to urging bureaucrats to help, not hinder, job creation.

Brown now faces an acid test for his alleged interest in helping the private sector: an insanely capricious and destructive decision by the state’s Franchise Tax Board to impose four years of retroactive taxes on hundreds of businesses because it lost a court fight with one business. It was a fight that started in 2008 over whether the company qualified for a tax break that encourages entrepreneurs — a partial state income tax exclusion on sales of stock of a “Qualified Small Business.”

Tax decree

At xconomy.com, victimized businessman Brian Overstreet shares his horrific story of facing a huge ex post facto tax decree, and explains its genesis:

“The company at issue in that lawsuit did not meet one of the QSB requirements—that it maintain 80 percent of its employees and assets in California. In August of 2012, the California Court of Appeals sided with the plaintiff, ruling that denying him the QSB exclusion based on the ’80 percent requirement’ was an unconstitutional violation of the interstate commerce clause.

“Since the FTB lost the case, you might think that they would strike the unconstitutional requirement and keep the rest of QSB statute intact. Not a chance.

“What the FTB did instead was to take their ball and go home. They decided that since they could not impose the 80 percent requirement, no one would be entitled to the QSB exclusion. They put out an announcement terminating the Qualified Small Business exclusion and retroactively disqualifying all exclusions and deferrals going all the way back to 2008.”

This is bonkers. You don’t get much more anti-business than punishing business owners out of pique over losing a lawsuit that those business owners had nothing to do with.

Overstreet’s takeaway from this assault on sanity:

“1. If you are a business founder or early investor who sold stock since 2008 and took the QSB exclusion: Surprise! You are going to get a bill from the FTB for the 50 percent of the taxes you excluded plus interest plus possible penalties.

“2. If you are a business founder or early investor and have not yet sold stock: Rethink your business and tax planning strategies. Consider whether it’s fiscally prudent to stay in California.

“3. If you a contemplating starting or investing in a California business: Think long and hard. Consider out-of-state alternatives.”

The governor should clean house, right? Well …

If Jerry Brown really means what he says about wanting to help grow jobs in California, here’s what he should do: Clean house at the Franchise Tax Board.

FTB Executive Director Selvi Stanislaus? He should be gone, for starters. And so should everyone at FTB who thought this made sense.

But there’s a little problem with the let’s-clean-house theory. According to the FTB’s website, who are the three members of the agency’s governing board?

1) Ana Matosantos. As in Jerry Brown’s director of finance.

Evidently word of the governor’s desire to help the private sector hasn’t reached his Cabinet.

2) Jerome Horton. As in the former Democratic lawmaker from Inglewood appointed by Brown to the FTB oversight post.

Evidently word of the governor’s desire to help the private sector hasn’t been shared with his board appointees.

3) John Chiang. As in the state controller, elected by the voters.

Evidently breaking trust with job-creating entrepreneurs in such grotesque and extreme fashion isn’t a big deal to the veteran Democrat who fancies himself as governor material.

I look forward to watching this story play out. Most mainstream media in California have little sympathy for business complaints. But everyone can relate to the story of people hit with four years of dubious back taxes because of childishness and stupidity from tax bureaucrats. And their bosses.

Your move, Gov. Brown. Yo, Jerry: Do you think this is fair? Tolerable? Honorable?

We shall see.

11 comments

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  1. Marten Purdy
    Marten Purdy 20 January, 2013, 11:11

    he foolish assumption that some founders of some companies and organizations have that leads them to believe that they have special privileges to make decisions that don’t make good business sense.

    Reply this comment
  2. Bob Smith
    Bob Smith 20 January, 2013, 15:44

    I thought the legislature created the QSB exclusion, not the FTB. Since when can the FTB refuse a taxpayer the benefit of a law duly passed by the legislature? It would be like the IRS unilaterally deciding that nobody can take a mortgage interest deduction. I can’t image this action withstands appeal.

    Reply this comment
  3. BobA
    BobA 20 January, 2013, 17:08

    Those businesses will be leaving California shortly and it will be one of the best decisions they ever made. Leave California to it’s own devices and madness and let’s see how it fares when those jobs and taxable incomes are gone.

    In an abstruse way, it’s rather entertaining to watch California shoot holes in it’s own foot. It’s less painful and more expeditious though if they aimed for the temple.

    Reply this comment
  4. Hondo
    Hondo 22 January, 2013, 08:23

    How many times do you have to say, “This is insane”. After a while it is like crying wolf, which is what the socialists are hoping.
    Between these last huge tax increases at all levels of govt, and these assaulting regulators, I can’t see the unemployment rate going down any time soon. At least not enough to make a difference. The left crowning that the unemployment rate went below 10% to 9.8 is insane. It should be below 7%. Kali’s economy should be growning at 5% at least, not the 1% it has been growing. And the reason is the taxes and regulation and the lawyers.
    And that means less revenue for the dems to spend. Why can’t they see that.
    Hondo….

    Reply this comment
  5. NTHEOC
    NTHEOC 22 January, 2013, 17:17

    Hondo says,
    Between these last huge tax increases at all levels of govt, and these assaulting regulators, I can’t see the unemployment rate going down any time soon.
    ===========
    “”HUGE”” tax increases Hondo? If you think the increases are huge then you are really out of your mind. Oh and here are some current articles relating to some of your comments!!! Boy you CHICKEN LITTLES really can’t shake off the negative spin!!

    —-Orange County car sales jump 24 percent
    New car sales in Orange County accelerated sharply in 2012. Driven largely by an improving economy and low interest rates, new light-vehicle registrations rose nearly 24 percent during the past year, according to an annual report by the Orange County Automobile Dealers Association.
    —-O.C. unemployment rate falls to 6.8%
    Orange County’s unemployment rate dipped to 6.8 percent last month as the local economy continues its slow recovery. It was the first time in four years, local unemployment has dropped below 7 percent.

    Reply this comment
  6. Rex the Wonder Dog!
    Rex the Wonder Dog! 22 January, 2013, 19:16

    NTHEOC, the AGGREGATE of the tax increases is huge, combine all of the increases from the last 25 years and they are gargantuan.

    Reply this comment
  7. Marten Purdy
    Marten Purdy 23 January, 2013, 07:40

    The Rethuglicans primary concerns are the protection of wealth of the super rich, which have mostly inherited wealth akin to hereditary rule over successive generations. A typical part of their dogma is their indoctrination that all life is based on survival of the fittest, see Social Darwinism and Fascism, and only the fit deserve to exist. And their concept of those fit for the environment are those who have wealth, while all those who are poor are simply supposed to work for works sake in producing more wealth for the wealthy. Anyone who isn’t willing to work for the corporate agenda is a parasite and should be removed from society as an unfit whiner.

    Reply this comment
  8. BobA
    BobA 23 January, 2013, 12:13

    Marten Purdy:

    A few questions: how many poor people do you know are hiring these days? When and where on planet earth is socialism (which you are furtively suggesting) working without the aid of confiscatory taxes? Do you know that socialism will inevitably collapse under its own weight when it can no long borrow and tax enough money to save itself from itself?

    Survival of the fittest is a basic human instinct. It’s built into our DNA. Discounting the government and financial industry parasites who create nothing but misery for others and profit from it, those who are more fit than others will always earn more and have more than those who are less fit.

    The survival instinct is a measure of one’s desire to be productive and create for themselves the circumstances in which their lives are free of wants, needs and desires to the maximum extent possible.

    The only searing unanswered question is what do the fit owe those who are unfit and/or can not survive on their own?

    In my humble opinion -and a great deal of others as well- those who see fit to get off their asses and work for a living are more than worthy of survival. Those who don’t, can’t or won’t should be gracious and thankful for the tender mercies of the fit.

    Reply this comment
  9. BobA
    BobA 23 January, 2013, 12:20

    One last thing:

    An innate characteristic instinct of all living things is to survive. The only way to circumvent that characteristic instinct is through suicide. Something humans are quite adept at doing.

    Reply this comment
  10. Marten Purdy
    Marten Purdy 24 January, 2013, 05:23

    BobA:
    Lying, cheating, stealing, bluffing, etc, in an obvious yet difficult to defeat manner. Usually everyone is aware of this type of bullshit when it occurs, but cannot stop it due to the fact that people using it usually are in a position of power, ie managers, marketing reps, etc.

    Reply this comment
  11. Harriett
    Harriett 24 January, 2014, 08:25

    I think that evereything sɑid made a great deal off sense.

    Howevеr, whаt about thiѕ? what if уou wеrе to write a awesome headline?
    І mеan, І don’t waոt tߋ tell you how to run ƴour website, but suppose yyou
    ɑdded a post title thаt makes people want more?
    I mеan Tax board attack օn business: Ɗo governor

    Reply this comment

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