Five years ago, the state of California offered small business owners tax breaks if they opened specific types of businesses. In Dec. 2012, the tax breaks were ruled unconstitutional by a court. As a result, the small businesses that once benefited from the tax breaks are now faced with tax debt.
This is because the California Franchise Tax Board has decided to collect the approximately $120 million in taxes that the now unconstitutional tax breaks saved small business owners. Some of the businesses affected by the ruling could end up owing as much as $200,000. There are those in the California legislature that believe that collecting the taxes retroactively is unfair since the business owners were simply following the law as it was written at the time. It wasn't up to the business owners to determine whether the law was unconstitutional.
A bill that would block the taxes recently made it through a panel in the Senate in July. The bill now has to get through a Senate Appropriations Committee fiscal review. The Senator behind the bill has said that business owners shouldn't be penalized for following the law.
Only time will tell if the legislation will pass. In the meantime, any small business owner that has found him or herself owing tax debt related to the revoked tax breaks may benefit from seeking professional advice and assistance in handling this matter. Simply paying the taxes may not be the best course of action in this case since the issue of whether the taxes are actually owed seems to be unresolved.
Source: Fox News, California small business owners ordered to pay back millions in tax breaks, No author, Aug. 21, 2013