The tax bill’s not in the mail, for now

SACRAMENTO -- The tax bill isn’t in the mail, at least for the next 90 days.

The California Franchise Tax Board, which collects the state income tax, has temporarily opted not to send out bills to about 2,000 taxpayers telling them they owe $120 million in back taxes.

State tax collectors originally mailed notices in December retroactively dunning taxpayers after a court threw out as unconstitutional an investment incentive program. As a result shareholders in small businesses could be on the hook for taxes on income from the sale of stock for the years 2008-12, plus interest.

The taxpayers as expected to react with outrage that they were being billed for taxes that weren’t legally due at the time they filed the now-disputed returns. They were taking advantage of the “Qualified Small Business Capital Gains Incentive,” which had been approved by the state Legislature and the governor two decades ago.

A hastily organized lobbying group, called California Business Defense, began pressuring lawmakers and the governor to find a solution that wouldn’t unfairly hit investors with unexpected and what they called arbitrary, retroactive tax bills.

Fixing the problems is expected to require passage of a new law that satisfies the court’s ruling that granting the tax break for investments in California discriminated against Californians who invest elsewhere.

As a result, the Franchise Tax Board, for now, has agreed not to send out any tax-due notices for at least three months.

“What this means in plain English is that the FTB is giving us time to fix this situation before mailing the actual bills,” said Brian Overstreet, a spokesman for the taxpayers group. “With the waivers in place...no one will actually owe any money and there are no collection or appeal actions needed...”

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