The small business industry is bracing for tough financial times ahead. This is because according to a federal courts’ directive, California is slated to collect around $120 million worth of back taxes, both from the small business owners as well as their promoters. This revoking of the tax break law did not go well with the local small and medium enterprises that see it as an added burden on them, given the slow economic growth and high operational costs.
According to some recent news, California-based lawmakers have been approached to work out some fresh rules that can legally terminate the existing tax break laws currently prevalent in the state. As a result, the fresh law will revoke the Qualified Small Business Stock tax break rule. This particular pro-business legislation provided small business owners based out of California with great amount of tax relief.
Even investors used to take advantage of this law that allowed every qualifying individual to enjoy a tax break of not more than 50% from their income. However, this was mainly a part of the state tax filings and is not applicable in case of federal taxes.
As per the local media of California, this particular tax break has now been provided for almost 20 years. Moreover, this tax break was considered as a way to promote small business enterprises in the state that’ll fuel local economic growth by attracting higher amount of investments.
However, during the fourth quarter of 2012, a U.S Federal Court struck down this tax break law citing its discriminatory nature. In other words, the Federal Court opined that the concerned tax break law infringed in the way interstate trade and commerce laws work.
On the heels of the federal directive, California policymakers went a step ahead with their legislation by coming up with a law that is expected to recover all the tax breaks given out to small business enterprises throughout these years. It is basically a mean to regain the money, California perceives that it lost because of the tax break law and now with a proper legislation in the offing, it wants to collect back taxes worth around $120 million from the small business entrepreneurs.
From a small business point of view, even the Obama administration has forsaken small business owners as far as the fresh budgetary allocations are concerned. According to the critics, the budget is not conducive for small businesses and has nothing to offer that can ease their tax burden. Moreover, those small business owners who counted on these tax breaks to get out of debt, will now have to consider some better debt relief alternative.
In order to implement this new tax law, the Franchise Tax Board has determined that it’ll slap taxes all those small business owners who enjoyed tax breaks from the year 2008 until now. So, to reclaim all those back taxes, the state agency has selected 2,000 taxpayers for the same. As per the estimates, taxpayers will be billed on an average $60,000 to $100,000 worth of back taxes.