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California To Hit Startup Founders with Big Retroactive Tax Bills (xconomy.com)
301 points by waderoush on Jan 15, 2013 | hide | past | favorite | 303 comments

One-sided and confused article. Whether this is an attempt to mislead readers or a misunderstanding by the writer, I don't know. But this is not a case of California choosing to implement an unhelpful policy. This is a case of California's previous helpful policy being found illegal because it violates the commerce clause; the FTB had no other choice but to impose the tax.



The FTB did not 'take its ball and go home.' The Court told the FTB that it was not allowed to favor [EDIT: investment in qualifying] California corporations that way to begin with. An alternative would have been to extend the tax break to all companies that do business in California and send them a refund check for every year the QSB rule had been in place, but the FTB most likely doesn't have that much money available.

Hi - as the author of the article, I don't think I was misleading, nor do I think I misunderstand the issues. The FTB has a number of options and tools at its disposal to craft an alternative to this "nuclear option". They could have changed the rule going-forward and allowed post 2008 QSB exclusions under revised terms. Yes, that may have cost them some $$$, but probably not as much as you think, and certainly not as much as they will now collect. Maybe this was the easiest remedy for them in the short term, but the remedy they've inacted will have significant long term negative implications. -Brian

This is entirely wrong. North Carolina and later Pennsylvania were nailed years ago for similarly unconstitutional schemes favoring in-state companies and had to similarly solve them with retroactive taxes on their own citizens. The only options acceptable to the feds when a state is found to have systematically screwed over the citizens of the other 49 states like this are retroactive correction in one direction or the other - there is no option to stop doing it now and keep the ill-gotten gains from the past.

I believe you are wrong.

From the law: (1) The term "qualified small business" means any domestic corporation (as defined in Section 7701(a)(4) of the Internal Revenue Code) which is a C corporation if all of the following apply:

Because the act explicitly qualifies that the exemption applies only if ALL conditions are met there is no question of legislative intent or judicial remedy that could be applied. There is no possibility of "revised terms" because that would mean essentially rewriting the statute to make some conditions optional, which was not the intent of the law.

Thus the entire statute(18152.5) is unworkable as explained by the FTB:


allowed post 2008 QSB exclusions under revised terms.

I'm not at all sure that the FTB has the authority to do that. It's a statute that was struck down, not an agency rule. If the CA legislature wants to make it up to everyone, it could craft some legislation to that effect, but I don't see how the FTB is empowered to start issuing checks on its own authority.

While you seem to imply that the FTB could simply change the rules, everyone else on this thread seems to think the FTB is not able to alter the rules at all (as that would require the legislative authority they do not have). Are you sure the FTB has the power you ascribe?

"The court's decision made California's entire QSBS statute invalid and unenforceable"


> Yes, that may have cost them some $$$, but probably not as much as you think,

Why didn't you report this number?

Don't assume that he knows this number.

In the original article, he didn't even mention the amount of tax breaks given by the code thus far.

I doubt the purpose of the article is to inform, as much as it is to tell you that you should be outraged about something anti-entrepreneurial done by California.

The FTB doesn't have a choice. The court invalidated the statute which provided the benefits. The legislature could pass a new statute which provided similar benefits without the features which made the old statute unconstitutional, but the FTB is an executive-branch agency and can't make up its own laws to replace ones that are struck down by the courts.

Good point - the FTB doesn't have the authority to give away more of the state's money to people who sold stock in non-QSBs.

I do think there's a problem here of notice; I can't pretend I'd feel enthusiastic about having to pay 5 years of back taxes if I had been enjoying this tax break [edit: well it's a deferral rather than a break, but it's still a benefit]. But as you say, that's not up to the FTB; some other taxpayer will have to sue the state and argue successfully against retroactive taxation.

The court did not invalidate the statute, it invalidated one of the many qualifiers for a company to be deemed a QSB.

"The statute is discriminatory on its face and cannot stand under the commerce clause."


It's at the end of section 3 (pagination doesn't work properly on GS at present). Seems pretty unambiguous to me.

PS: I think the least you could do is update your blog post to remove the factual inaccuracies and correct the misapprehensions of your readers; most of the commenters at the blog page appear to have taken your explanation at face value.

Hi - I apologize for taking a while to circle back to this as I think you guys are raising some very important points. But I still contend that your interpretation is incorrect and I certainly content that I did not post "factual inaccuracies" in my piece. Listen, I'm not a consitutional or tax lawyer, I'm a business owner who's upset at what's happened here. That said, I spoke to professionals (legal and tax) with a lot more knowledge and experience than I have who advised me on the facts and implications of the underlying case before I wrote that essay. I'd like to direct you to a piece by Deloitte that was issued after the Appelate case was handed down (link below) - and well before the FTB action. The section toward the end titled Undecided Issues makes clear what the court ruling definitely said, what it definitely did not say, and what was handed back to the lower court to decide. It's certainly possible that the action taken by the FTB was their only possible course of action, but the legal and tax professionals I've spoken to or read online don't agree with your position on that.

Thanks for your interest in this matter, -Brian

Here's that link: http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Ass...

And here's the specific section I'm referring to:

Undecided Issues As noted previously,16 the same definitional provisions upon which the property and payroll requirement is derived for purposes of gain deferral under Section 18038.5 apply also with respect to qualification for gain exclusion under Section 18152.5(a). However, the Court of Appeal’s decision addressed the constitutionality of the gain deferral provision under Section 18038.5 only, and the facts before the court did not involve the gain exclusion provision under Section 18152.5(a). Thus, the court’s decision did not address whether the property and payroll requirement would cause the gain exclusion provision under Section 18152.5(a) to also be deemed unconstitutional. The court’s decision in Cutler also did not address whether the unconstitutional definitional language in Section 18152.5 (and the Section 18038.5(b)(1) crossreference to that language), upon which the property and payroll requirement is based, could be excised from the statutes or whether the decision would operate to invalidate both statutes in their entirety. Finally, as discussed above, the Court of Appeal declined to decide whether the taxpayer should be afforded the refund requested or whether some other appropriate remedy, if any, should apply and instead remanded the case to the trial court for further proceedings to address the remaining factual dispute and, if appropriate, the remedy.

FTB must act in accordance to the law. If you feel that they are not doing so, why aren't you filing a case? You make it sound like you have more at stake here than Cutler.

EDIT: If talking to legal and tax expects leaves you only feeling "upset" instead of "seeking remedy", then it seems that what the FTB did is in accordance to the law, and that you simply don't like it.

The court ruling explicitly stated that the statute could not stand under the Commerce Clause.

You could probably argue that some of the other things in the ruling very strongly suggest that the Court didn't understand the scope of the statute and the impact of invalidating the statute as a whole and might have said something different if it was reasoning clearly, but even though it might be a result you favor in this case, I doubt you really want executive agencies to start applying court decisions based on what they think the court would have ruled had it been reasoningly clearly rather than what the court actually ruled.

As a business owner this crap terrifies me. Washington State was looking at changing their tax code retroactively to get more money from Microsoft, luckily level heads (and I might presume, extensive lobbying) prevailed.

I can't plan today for what yesterday's laws will be tomorrow.

Unfortunately, I think you'll see more of these problems as states get crushed under their existing debt and new expenditures from pension obligations, etc.

See: http://www.usgovernmentspending.com/compare_state_spending_2...

Perhaps defined-benefit retirement plans should not be in the public sector since they haven't been in the vast majority of the private sector for quite some time.

It completely baffles me how any reasonable person could look at the retirement and health benefits situation in our country and come to the conclusion that our problem is being too generous to the working class.

Yes, the private sector has been much more effective than the public sector in collectively diminishing workers' wages and benefits in recent years. The logical conclusion is not that the public sector should do more to keep up with the downward spiral.

It's not so much a wage thing, but companies that continue to act recklessly with their money typically go out of business. Governments and companies propped up by governments simply print more money and attempt to take more from their populace. There are simply no consequences for repeated poor actions.

I am looking out my window now at a city project to build a park that is maybe 25 yards wide and 75 yards long. The property sits between a private car lot and an office building with no nearby parking, so I'll be surprised if I ever see anyone use it. That of of course assumes it is ever finished. It has been under construction for just over a year and still looks nowhere near complete. We joked a couple months ago while we watched workers move dirt from one pile to another and back again over the course of a month.

Now of course this is a small probably <$5M project, but if government can't manage it how am I supposed to trust them to manage healthcare or retirement? So yes, it baffles me how any reasonable person could look at the retirement and health benefits situation in our country and come to the conclusion that government can provide a fix.

You indulge in too many fallacies here to address individually, but since you bring healthcare into the discussion, the bottom line is that we know that government-run healthcare works. See: almost every other developed Western country, while the US system remains fundamentally broken.

You can engage in all the a priori pleading you like, but until you address that empirical, real-world fact there is no worthwhile argument to be had.

You are right about the status of retirement. However, the role of government is to serve the public first, not to serve public employees. Everyone should have a dignified retirement, perhaps on the order of 60% of earned wages. Social security benefits should be raised accordingly, retirement age should be lowered back to 65 for max benefits and we should mint a platinum coin to ensure its all funded.

It completely baffles me how any person who can add could look at state budgets in our country and come to the conclusion that our problem isn't guaranteeing massive levels of debt for work done decades ago.

In case you didn't realize it, that costs the states money, and money is what states don't have.

The states can find other things to cut than middle class benefits.

Like what? E.g. in Chicago, the infrastructure is crumbling so that teachers can get paid far more than they would earn in the private sector given their qualifications, meanwhile getting 13 weeks off each year.

It's entirely possible for a state to have reasonable policy w.r.t. current and future expenses given a certain tax base, then lose that tax base and get stuck with unsupportable obligations. If NYC became Detroit over a period of 10 years, just pension liabilities would destroy it going forward.

In case you didn't realize it, tax rates closer on par with other developed countries are a perfect solution to that problem.

This is the exact same argument the supporters of Ohio Senate Bill 5[1] used. One reason people in the public sector are willing to be paid less than their private counterparts is because their benefit plans are genuinely better. Saying they should eliminate one of the better benefits public sector employees get is stupid.

[1] http://en.wikipedia.org/wiki/Ohio_Senate_Bill_5_Voter_Refere...

First of all, I don't know about you, but I don't come to HN and try to have a somewhat intelligent conversation just to be called stupid for expressing an opinion.

Secondly and to your point, I am only speaking of defined-benefit "If you work here for x years you get y% of your salary." This is to say nothing of the health care (which is generally better than the private sector), the hours (which if you don't work for a legislator are generally better than the private sector), the guaranteed pay raise every year, the access to jobs you can only apply to if you already have a state job, and various small perks like free or cheap parking, food, etc. These are all benefits of the job and I had to take a serious look at the health care and hours for a state job when deciding between that and a corporate offer.

I'm not here to argue whether or not defined-benefit retirement plans are inherently good or bad. I'm saying it's irresponsible and dangerous for a state to guarantee by law that they'll pay anyone a fixed amount of money for decades at some distant point in the future. This is why it's most dangerous. If the state gets bankrupted by some unforeseen catastrophe 30 years from now, it can't suspend, eliminate or trim pension payouts. Not even $0.01. By definition the fact that pensions offer better retirement income than defined-contribution plans like a 401k should be a giant red flag. The system implodes if you can't at least break even off of it, and if it was possible to make money off of them the private sector would still be using them.

"First of all, I don't know about you, but I don't come to HN and try to have a somewhat intelligent conversation just to be called stupid for expressing an opinion."

He didn't call you stupid for expressing an opinion, he called that particular view stupid.

Saying that a particular view is stupid without offering any additional information or another viewpoint is... well...

This isn't 7th grade — come up with another word that really means what you want to say. There are a lot of ways to disagree with someone and/or an idea without the derogatory language.

I don't think it was intended to be persuasive, but I don't believe it was meant as a targeted insult either.

"Perhaps defined-benefit retirement plans should not be in the public sector" - that's not an opinion, that's an idea. Not a good idea, either.

Why is it not a good idea? Given that he and I both don't understand why public sector jobs inherently require defined-benefit retirement plans when the vast majority of workers don't have them, it's apparently not obvious that it's a bad idea.

Unsustainable benefits are stupid.

Of course, when legislators pass pension hikes, they do so knowing that it pleases powerful unions now and the costs to tax payers are decades down the road. So it is one of the more appealing ways for a legislator to screw their state. They may even be out of office by the time the bill comes due!

Defined-benefit pensions are a huge drag on many state budgets, and paying them does nothing to improve the quality of current government services. The bluer the state, the more they are screwed:


Blue states are also richer, so you would expect them to spend more on government services and thus pensions. The real issue is pensions are based on the idea that future growth reduces the burden however in a stagnate economy they become a real issue.

People say this all the time, but I really don't see it. I really don't think teachers are that underpaid, and I say that as someone married to a teacher. They only work 9 months of the year. If private sector employees only worked 75% of the time, it's likely they'd make less money too. Would I like it if my wife made more money? Sure. Does that mean I think she should, at the expense of everyone else's tax dollars? No.

Contrary to what you say, most people don't choose teaching because of the benefit plans. They might do it because they only have to work 75% of the time, but it isn't the benefits. They choose it because that is what they want to do. Help kids, teach, etc.

The benefits do not make sense as a reason to do this job. If that's what you're going for, you'd just take a job in the private sector, work more, and make a lot more money.

I was not under the impression that public sector employees are paid significantly less than private sector. This seems to be the most reputable source I could find:


Offering deferred benefits is the thing that is "stupid" - it should be all cash to state employees so that their cost is correctly accounted for as part of the current budget.

Yes, I understand this might mean we have to pay higher salaries, but it will be far less than these crazy benefits they are getting.

"Saying they should eliminate one of the better benefits public sector employees get is stupid"

It's not stupid to them, they want labor compliant, they don't want better options available to compare to.

"Why worry about retirement? You should be lucky you HAVE a job..."

Perhaps so, but that doesn't change the fact that they exist. If the State killed all new pensions they'd still have to pay existing obligations.

Government spending has nothing to do with constutionality of law. The law was simply struck down by the courts, in this case. It's not some government plan to increase tax revenues.

Shove them (States) in between a rock and a hard place, and they pretty much run out of options. Not surprising.

They've got tons of options. They could, for example, cut back the bloated private sector.

...but the governments are on the side of the government workers (most government workers are unionized and these funds lobby the politicians).

The result is that it becomes an "us vs them" fight, and while common citizens may theoretically have political power through the ballot box, in practice power is mostly exercised through campaign donations and backroom deals, so the politicians are taking the decisions that they're incentivized to take: stealing seed corn and feeding it to the public sector employees.

> They could, for example, cut back the bloated private sector.

Isn't that what they're trying to do? :D But I guess this is a typo for "public sector"...

That will work until one of the Microsofts of the world decides it's more cost effective to move everyone 2 hours drive north to Vancouver than it is to pay this giant bill.

The US is quickly going to learn that there is a rather modern country to the north that isn't in the same financial distress as Europe or most states are.

I'd imagine given that, this line of thinking would probably play itself out pdq.

You don't know much about Vancouver if you think this is a realistic possibility.

Vancouver, BC has barely any tech industry (a few software companies like Business Objects, and EA Sports are up there, but nothing meaningful), and the taxes are high. British Columbia has one of the highest tax rate in Canada. One of my Canadian friends told me that the 50% marginal tax rate started around $65k, although I haven't double-checked this for accuracy.

You can't compete between Washington State, with no state income tax, and Vancouver, BC.

I live in Vancouver. Have you ever actually lived in Canada?

>Vancouver, BC has barely any tech industry


Let's just ignore the fact that MS has a development centre in Vancouver, specifically because its easier to hire game developers here. Halo is being written here.

> British Columbia has one of the highest tax rate in Canada.

You may want to tell that to BC: http://www.bcjobsplan.ca/?facts=b-c-lowest-personal-taxes

>One of my Canadian friends told me that the 50% marginal tax rate started around $65k, although I haven't double-checked this for accuracy.

Your friend is either an idiot, or hasn't lived here in a long, long time.


>You can't compete between Washington State, with no state income tax, and Vancouver, BC

How's your health care? How much does that cost your employer?

There are many great things about WA. I love it. However if the state is going to retroactively go after companies, BC starts to become very, very attractive. We are not that different, tax wise. We obviously need to stay competitive.

> Let's just ignore the fact that MS has a development centre in Vancouver

Wow, MS centre! It will save us all. And they don't have MS centers anywhere else, right? Vancouver here.

* All of Canada has as many my profile job openings as Seattle.

* Salaries are lower here than there.

* Taxes are higher here than there.

* Prices are higher here than there.

* Selection of everything is miserable here.

* It's impossible to have a career if you can't talk hockey for 2 hours. Nobody gives a f$%k about your abilities - you must be "one of us".

> How's your health care?

Pathetic, thank you. I just waited 4 months for an ultrasound. They said everything was OK - but why then would I have insisted on it in the first place?

> BC starts to become very, very attractive

Do you have a house for sale? Because it sure sounds like it. BC does not start to become very, very attractive to anyone ambitious and able - and these guys will go to US for the same reason that all ambitious and able Canadians move to US.

There are M.D. taxi drivers and Ph.D. WalMart cashiers here - because their names are Davinder and Reza rather than Sean and Tim.

No doubt, BC is a great place for natural resources barons, drug traffickers, porn and gambling shops, and bribe-happy Party officials from China. It's extremely neophobic, hypocritical and hostile to changes.


You're right. What am I talking about? Vancouver is a shit hole. It's clear that nobody wants to live here.

I mean just look at where it ranks!




> How's your health care? How much does that cost your employer?

This point is significant in and of itself. It's no coincidence that health insurance is a central point in just about every major recent union dispute.

Health insurance is wildly expensive, and the cost to private corporations is not to be underestimated. Anyone who's ever had to provide health insurance to employees is acutely familiar with these costs.

My friend worked for EA Sports, so I trusted the information he provided, but I guess he was wrong. The marginal tax rates are 43% at 135k.

Yes, Vancouver has some tech companies, but I wouldn't call it anything like a tech hub like Ottawa or Toronto. Also, UBC and SFU do not have a strong tech program. I'm sure it's average compared to most cities, but you won't find the same amounts of tech people in Vancouver like you will in Seattle or Silicon Valley. In fact, I'd bet that most above average developers in Vancouver would move to a more tech-oriented city.

He also mentioned that the cost of housing in Vancouver is twice the amount of Seattle. Not sure how accurate that is either.

It's too bad such an informative post had to be accompanied with so much condescension. You easily could have made your point without name calling.

"Halo is being written here"

Some of Microsoft's game studios may be based there, but I believe this is not necessarily true for Halo. 343 Industries is based in Kirkland.


Sorry, I understood it wrong. It's being referred to as "the next Halo", which is kinda silly.

High taxes aren't an issue, since healthcare is free and there is a very strong social safety net.

Also, taxes aren't high.

It's all relative, no?

Long ago, when I moved to the US from Canada, I figure out what I'd owe in tax in Canada vs. what I was paying in the US.

Keep in mind that I owed a home (mortgage interest deduction) and maxed out my 401k (which isn't a % of income like Canada).

I was only making $50K/yr, but I was taking home an extra $5K by living in the US and not Canada. 10% more income is pretty good, no?

Depends how long ago you were here, but we've been seeing tax rates fall pretty consistently for a decade.

Add it all depends on what state/provinces you're comparing. I would fathom to guess that the lowest in Canada vs. the highest in the US isn't all that different, especially if you don't take advantage of country specific deductions.

Well, for example, Albertans pay less tax (federal and provincial combined) than Californians, but more than Washingtonians (who pay no tax, but also have to pay for their own healthcare). Keep in mind, raw salaries tend to be higher in Canada, as is cost of living. It'd be pretty complicated to actually sit down and puzzle out real take-home wages as compared to PPP, but I doubt there'd be a massive difference.

According to this, it's pretty comparable to the US if you live in California. Higher than the US if you live in Washington under their current tax laws.


The corporate tax rate is actually lower than it is in the US though.

How much does Microsoft actually pay in corporate taxes to the US?

[0] https://encrypted.google.com/search?q=microsoft+tax+avoidanc...

"50% marginal tax rate started around $65k"

I think your friend has very poor math skills.


$65K gross income in BC nets nearly $52K; a ~20% average tax rate. This is before any eligible deductions.

Even if your friend was making $1,000,000 gross salary, they'd still pay less than 42% tax on average, and that's ignoring several legal tax shelters available to all Canadians.

What are property taxes like? Vancouver real estate is absurdly expensive compared to even SFBA from what I remember (although I was looking at London Properties), so the rate is on a really high base, too.

I'd be interested in an objective comparison of SF, Portland, Seattle, and Vancouver from the perspective of a startup and ~10-20 developers making O($100k/yr) each. Maybe throw in Las Vegas or Austin, for the lowest possible US case, and someplace like Calgary for the cheapest Canadian case.

Superior Canadian immigration rules would seem to dominate if taxes are even within 50% of each other in some cases (founders or substantial early employees not being willing or able to work in the US), and would also dominate in cases like "gaming", anything privacy/anonymity based where US law was an issue, etc. I'm not sure how Canadian investment rules work (I know there's the weird R&D tax credit, and there were issues until recently with taxing or reporting gains).

Renting is the only sane choice in Vancouver right now as most Van RE is extremely overvalued. Median household income in Vancouver is ~$67K, which indicates RE prices are definitely out of whack. Calgary would not be my choice for "cheapest case", I'd place Windsor Ontario (EST) in that slot, although I wouldn't want to live there :P. For a low-cost large city Ottawa Ontario (EST) is quite attractive.

Corporate taxes are lower in Canada, but there are other mandatory payroll costs like CPP (9.9% of the first eligible $50k earned split 50/50 between employer/employee) and EI (employer pays 1.4x whatever the employee pays at 1.88% of the first eligible $50K earned).

Note, he said "marginal" not "overall" tax rate.

Don't forget that BC has 12% sales tax and monthly premiums for health insurance.

Income tax is only one of the many taxes.

BC has (or rather will return to) a variable sales tax that floats around 7% normally. There is also a 5% GST everywhere in Canada. (Like a VAT)

Correct on MSP (Medical Services Plan). Personally, I'd love to abolish this and roll it into general revenues. It's a nightmare.

Sales tax is not a 'marginal' tax, and is certainly not unique to BC.

No, it's not a marginal tax, I was just referring to the fact that total tax burden has to include more than just income tax.

ok, the highest marginal tax rate for a $65K gross salary is ~30%. Everyone gets the first ~10K tax-free, then it's ~20% (in BC) off the next ~$40K, then ~30% off the next ~$40K. Only the last ~$15K gets taxed at 30%, and you can easily reduce that to zero with available legal tax-shelters/deductions/credits.

BC health premiums are $65/month for a single person. Sales tax is a consumption tax and not really relevant.

But I thought their financials would be in ruin, what with giving out all of that free healthcare?

Don't get me wrong, we will eventually get to the spot Europe is in if we don't make changes to our health care services of one type or another.

We have however shown a remarkable ability to vote for people that tell us we can't afford things we can't afford. We took drastic austerity measures in the 90's and we actually voted for it - twice.

I'm not too worried about our finances, once people get the numbers in front of them, they tend to be convinced.

Europe's healthcare has nothing at all to do with "the spot they're in". The spot is due exclusively to short-sighted compromises in the structure of the Eurozone - the idea was to get into cheap markets and it paid off great for Germany, but now they have to pay the bill the voters are balking.

But no, the Canadian healthcare system is not going to pull you under.

A cohort of reasonable voters? You just keep racking up reasons to move there...

Vancouver has horrible housing affordability ratios (housing price : income), income is lower at the entry level for software by almost double compared to WA (MS can change that), cost of goods is about %15-%30 more expensive across the board. Housing prices are just now reversing because of stricter mortgage requirements. Interest rates are really low and an interest rate hike is just waiting to happen.

The reason why Vancouver is so bad for housing is because wealthy foreign investors see Vancouver as a stable store of value for their money. It's a complicated bank account for large sums of money.

Alberta is the money making place to be in Canada, since the resource industry & banking drives over %50 of the TSX. Rent is also a lot better in Alberta. But Canada is not a country right now to be a techie compared to the USA. It's a great place to be in the oil industry although.

I don't disagree with anything you say, but if you are moving from Seattle to AB you may as well pick a friendlier US state.

The reason I suggested Vancouver is because of it's proximity. It's pretty much the same place.

Come to Florida, it may be a red state but they stay out of your business and costs less.

It's a red state and thus they stay out of your business and it costs less.

Texas isn't too shabby either. Plus, fewer natural disasters means less downtime.

Hopefully you aren't fond of electricity[0], water[1], schools[2], or roads[3].

0 - http://www.ercot.com/news/press_releases/show/26375

1 - http://droughtmonitor.unl.edu/DM_south.htm

2 - http://www.statesman.com/news/news/state-budgets-call-for-cu...

3 - http://www.statesman.com/news/news/state-regional-govt-polit...

(Texas is my home state. I left, though I keep close ties to it through family and frequent visits.)

Electricity is being worked on, as that press release indicates. On the hottest day or two of the year, the power might go out for a little bit. It's not a big deal.

Water is going to be the biggest issue this legislative session. California has similar water problems.

Schools... are complicated. That one might not get fixed, but performance is better correlated with household income than education spending.

Roads are easy. Tolls. The people who use the roads pay for them.

Texas is my home state as well. I went to California for a few years, then came back. I don't plan on leaving.

Also looking at the Texas startup scene to name a few. TechWildcatters http://techwildcatters.com/ Texas Entrepreneur Network http://texasenetworks.com/ BarCamp Dallas http://barcamp.org/w/page/400642/BarCampDallas

Considering TXU is still being "managed" quite well by its leveraged buyout partners, "no big deal" may very well become a big deal. Texans already pay some of the highest average per-kWh rates in the country though the falling price of natural gas has helped.

Unless Texas is going to take water from Oklahoma by force, I wasn't meaning a solution to the problem from the state government. Texas is in a long-term, structural drought. The Ogallala aquifer is a shadow of its former self and the next major underground aquifer in East Texas is in danger of being rendered unusable by the Keystone pipeline. Several surface lakes have simply gone...away (check out aerial maps near Bronte).

As for tolling, I suppose the city folk will just keep letting paid for highways like 121 or capacity expansions (basically anything; 820, 183, Westpark, 635) go toll because hey, poor people don't need to get around. Mass transit will take care of that. Oops, no it won't. Besides, developers in rural areas gotta have their pristine FM roads (which are paid for by the state).

I didn't leave Texas for California (heavens, no) and I had the chance to come back this year making more money than I do in the (higher cost of living) state where I now live. Couldn't do it. Until the Legislature gets its head out of its ass and realizes that government is expensive--both for needed things like roads and schools, and nice to have things like state parks--and that you just dishonestly[0] can't cut your way to perfection, my state is going to be set up more and more for long-term failure. Even the Comptroller, who is legally required to make an accurate assessment of the state's income, can't get it all to balance without slight of hand.

0 - Sure, the state government hasn't raised taxes or imposed new fees in years. They just leave that hatchet job for the local governments. Never mind the several billion dollars earning crap for interest in the "rainy day fund" that's never once seen an emergency worthy of tapping it.

My apologies for the extreme derail; I'll stop ranting now.

Born and raised in Austin, still live and work here. I suppose I should learn a bit more about my own state as I didn't know much of this or the above comments...

HN: where all y'all learn you somethin'.

I moved here to Austin from the DC area two years ago and absolutely love the place.

And I do visit the Bay Area regularly as I work for Twilio. I just wouldn't want to live there.

Same here, went to the bay area for a few years and came back to Austin. It's just a better area, so many things to do and better quality of life.

I did half of your roundtrip. Grew up in the Bay Area, moved to Texas. Swore I'd end up moving back but seven years later I have absolutely no intention of doing so.

CapitalFactory.com is by far the most up and coming startup community in Austin.

I'm actually in Houston but I've been heavily involved with some of Geekdom's efforts in San Antonio. Great stuff going on there.

Also left Texas for the Bay, but ... I just got off the phone with my parents, and they assure me Texas still has electricity, water, [public] schools, and roads.

The electricity problems are more or less self inflicted by the generators to loosen up wholesale rules. Texas has /plenty/ of energy.

Water is a problem...a BIG problem. But...we have a large coastline, salinated deep water tables etc, so if it comes down to it we could expensively desalinate. That would be brutal, though.

As far as schools -- the overall decline in public schools is counter-balanced by the rise of good charter schools. If you care about your kids' education there are options.

The road situation is kind-of a pain but here in Austin and Central Texas area at least, we have improving public transportation. And there is the toll option (of which I am not a fan).

But the tax policy is pretty nice. And Austin cannot be beat in terms of livability if you can stand the summer heat. I think we have a $20-25 billion surplus this year so we won't be going broke anytime soon.

I find it amusing that you described Austin, the one big area of Texas that leans dramatically against the rest of the state, as the most liveable and put together. Kind of proves my point relative to the Legislature at large.

For what it's worth, Texas has never had a $25bln surplus. In the 2011 biennium, the budget had to cover a $27bln shortfall. (Note that all Texas budgets are written to cover two years, as the Legislature meets for 140 days on every odd-numbered year.) This biennium's budget will start out with approximately $8bln in unspent revenue (mostly left over from dramatic cuts made in the 2011 two-year budget) and starting out with $5.3bln in "unpaid bills" around the Women's Health Insurance Program and natural disaster spending. (http://www.dallasnews.com/news/politics/texas-legislature/he...)

I went to college in Florida. I love Florida. But their schools are no place to educate your children. Same goes for Texas.

And no state income tax.

If they're allowed to retroactively change how much they taxed you, can you refile your financial statements?

Yeah, didn't think so...

Can we just hurry up and address the real problem: California's constitution? We should just burn that flawed thing and start over. As I understand it, one of the major problems with California is that the reasonable-sounding idea that citizens should be allowed to amend the constitution through a ballot proposition has backfired and led to all sorts of special interests amending the constitution to protect their own interests by lobbying the public.




I also think states and locales should be able to declare bankruptcy and restructure their obligations. Currently there is no clear way to get out from under prior bad governance. Here's a good article about how San Bernardino is trying: http://www.reuters.com/article/2012/11/13/us-bernardino-bank...

> a third of the city's 210,000 people live below the poverty line, making it the poorest city of its size in California. But a police lieutenant can retire in his 50s and take home $230,000 in one-time payouts on his last day, before settling in with a guaranteed $128,000-a-year pension.

> In 2009, patrol lieutenant Richard Taack retired at the age of 59, after 37 years of service. He took home $389,727 that year, including $194,820 in unused sick time and $33,721 for unused vacation time, according to city payroll records. Shortly after Taack retired - on an annual lifetime pension of $128,000 - he was hired part-time by Penman's city attorney's office, at $32 an hour.

Doesn't feel like residents of California are getting a value for the % of tax that we pay overall. If you are self-employed and make say 150K you are going to be paying around 35% fed + 6% SS employee + 6% SS employer side + 9% Califonia. total = 55%. ( Granted the taxes are applied on a graduated basis so the effective tax rate would be less.) In Europe, they pay on the order of 50% with free healthcare and a great transportation system. In the bay area, we get charged higher insurance rates based on the zip code with live and we get to drive on 101.

Just crunched the numbers to see what the effective rate actually is. Assuming self-employed and single in California for 2012, with standard deduction and 1 exemption, your taxable income on $150,000 total income is $131,416, and your federal income tax is: $30,257. Your self-employment tax is: $15,468. Your state income tax is: $10,373.

Total effective tax rate is: 37.4%

A bit higher than I thought it would be overall, but not quite close to 55%. Of course, if you're at that level of income you should probably set up an S-corp to save on SE tax and dump some money into a 401(k) to further reduce your taxable income.

I'm sorry what? 35% federal income taxes on earnings of 150k? No.

Over $85,650 but not over $178,650 -> $17,442.50 plus 28% of the excess over $85,650

Total federal payment: 17.4 + .28(150-85) = 35.6

35.6 over 150 = .23, and that's before factoring in the deduction you get to take for your California payment, or the standard deduction if you choose not to itemize.

Do you have a problem with the amount of money they're paying, or the fact that they're paying a pension at all?

What your suggesting seems like a horrible idea. The point of a pension is that it's a guaranteed obligation. Being able to absolve yourself of it with a bankruptcy is a wonderful way to screw over the workers who paid into it their entire lives.

Screwing over workers happens all the time in business. So lets screw over tax payers instead so they wind up having to spend tons of money to finance benefits that they are not receiving.

I think what most people have a problem with is that pension benefits are written by politicians who've are strongly supported by union's and looking out for their interest while no-one is watching out for the interest of the tax payer. As a result, pensions are gamed to max out the benefits by working overtime etc. There should be caps on the size of pensions. Bankruptcy could be used as a tool to re-negotiate some of these abusive pension benefits.

You are still going to have the unions dominating the legislature and the cocomitant crushing pension obligations if you remove direct democracy from California.

The state is too big. You need too big of a budget to campaign here. So the unions dominate.

I say split the state in half.

It doesn't sound reasonable though, it sounds moronic. A constitution should be the basis of all law (can someone let Obama's administration know about this?) and therefore should be extremely difficult and rely on vast, widespread consent to change. You're entirely right that until this gets fixed, CA will always be screwy.

I agree there are problems with California's cosntitution, but the actual issue here is that the QSB exclusion violated the US constitution.

I would not have thought that retroactive tax bills were legal. Are there any other common examples or is this a new precedent?

The more troubling part is that he's claiming that they are charging interest and penalties on the 'unpaid taxes.' To retroactively change your bill, then charge you interest and penalties for 'late payment' seems well over-the-top.

If I didn't know better, I'd say that they was a blatant money grab. </sarcasm>

Virtually every year TurboTax tells me I can't submit my return because they're still writing the rules for the year that just finished.

The funny thing is that this isn't even the only one that CA is imposing, the entirety of Prop 30 (voted on in Nov 2012) is retroactive for the entire tax year.

The SC ruled that the retroactive immunity given to telecom companies was legal.

I'm pretty sure "Ex Post Facto" is dead.

Ex post facto is not synonymous with "retroactive."

See the post by David Redden in this thread: http://www.connorboyack.com/blog/ex-post-facto-law.

"Secondly, while there’s some evidence that some of the “framers” thought “ex post facto” included civil laws, it’s well-established that the most influential federalists in the late 18th Century understood an “ex post facto law” to mean a law that was 1) criminal, 2) functioned retroactively, and 3) worked to the detriment of the accused. (See Crosskey, The True Meaning of the Constitutional Prohibition of Ex-Post Facto Laws, 14 U.Chi.L.Rev. 539 (1947))."

The Supreme Court ruled in Calder v. Bull (1798) that the prohibition on ex-post-facto laws applies only to criminal laws, not civil matters. One could argue that shouldn't be the case, but it's not a later shift away from the 18th-century interpretation.

Retroactive immunity is rather the opposite of retroactive criminalization.

>No State shall... pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.


This situation was instigated by a successful lawsuit against the FTB. I wonder if another one is on the way. According to this, however, courts have ruled that retroactive tax laws are not considered ex post facto.

I did a quick google and found a discussion of retroactive tax laws (applying to gift taxes in 2010):


Potential arguments include due process, "wholly new tax", lack of notice, ex post facto (with the same caveat as mentioned here about applicability only to criminal cases), and the fifth amendment taking clause.

Conclusion: it's hard to fight.

Some things about the US still surprise me. In "socialist Sweden" (as it's sometimes called) retroactive taxation is unconstitutional.

On the other hand capital gains is 20-30%, and most entrepreneurs actually have their gains taxed as income. That means you're lucky if you get to keep 13%. ;) I'm exaggerating a bit, but not much.

> Some things about the US still surprise me. In "socialist Sweden" (as it's sometimes called) retroactive taxation is unconstitutional.

The difference between the US and postage-stamp-sized European countries like Sweden is that there is great political and cultural variation between different parts of the US. California is chock full of socialists/liberals.

postage-stamp-sized European countries like Sweden

At 174K mi^2, Sweden is larger than California's 164K mi^2.

Population-wise, Sweden is about the same as new york city.

You're being intentionally obtuse. As is immediately apparent if you look at a population density map of Sweden[0], the vast majority of the population is concentrated in the southern part of the country.

0: http://upload.wikimedia.org/wikipedia/commons/b/b2/Swedishpo...

If you meant population, you should have said population. The phrase "postage-stamp-sized European countries" is pretty broadly understood and used to mean things like Andorra, Lichtenstein, Luxembourg, Malta, Montenegro, &c.

By no stretch of the imagination is interpreting a widely-used phrase as it's widely used "being intentionally obtuse."

I'm a socialist/liberal who lives in California and I think the idea of retroactive taxation on anything (be it person or business), is nightmareish and should be abolished.

Given that Sweden is about 10% larger than California, albeit with less than a third the population, it's hardly "postage-stamp-sized". Given that we elected Reagan, Schwarzenegger, and David Dreier, California's chock full o' wingnuts as well as socialists/liberals.

> Given that Sweden is about 10% larger than California, albeit with less than a third the population, it's hardly "postage-stamp-sized".

I already addressed this point below in response to another reply: http://news.ycombinator.com/item?id=5062138

> Given that we elected Reagan, Schwarzenegger, and David Dreier, California's chock full o' wingnuts as well as socialists/liberals.

I'm not familiar with Dreier, but there's no doubt that Californians have a soft spot for actors.

It's not retroactive taxation. The Supreme Court pointed out that a tax break enacted several years ago was unconstitutional.

most tax bills have a severability clause in them, meaning that is one part is struck down, the rest remain in force. I don't know that was the case with this particular law.

It's technically unconstitutional in Italy as well, but it keeps happening over ad over... "Emergency measures".

> applicability only to criminal cases

Where do you get that? The Constitution says simply:

"No Bill of Attainder or ex post facto Law shall be passed."

Period, end of story. Just because someone on the Internet says this applies only to criminal law doesn't make it so.

How about the US Supreme Court:

See Carpenter v. Pennsylvania, 58 U.S. 456 (1854):

"The debates in the federal convention upon the Constitution show that the terms "ex post facto laws" were understood in a restricted sense, relating to criminal cases only, and that the description of Blackstone of such laws was referred to for their meaning. 3 Mad.Pap. 1399, 1450, 1579.

This signification was adopted in this Court shortly after its organization in opinions carefully prepared, and has been repeatedly announced since that time. Calder v. Bull, 3 Dall. 386; Fletcher v. Peck, 6 Cranch 87; 33 U. S. 8 Pet. 88; 36 U. S. 11 Pet. 421."

The Court gets things wrong occasionally. They got this wrong. Legislative intent does not trump the clear unambiguous wording of the law. This is why, for example, minting the trillion dollar coin would be legal despite the fact that this was clearly not the intent of the legislation.

"Ex post facto law" was a well-established legal term of art referring to a class of criminal law either imposing new prohibitions or increasing punishments for crimes committed before the law was enacted well before the Constitution was written.

Legislative intent doesn't trump the clear and unambiguous wording of the law, but the clear and unambiguous meaning of "ex post facto law" is the particular class of criminal law that the phrase "ex post facto law" has always referred to.

ex post facto isn't English, it's not even really Latin. It's a legalism. The go to source of meaning for Anglo legalism in the late 19th century was Blackstone's "Commentaries on the Laws of England" . It's the Blackstone definition that the Court adopted.

I stand corrected. Wow, this sucks.

See Calder v. Bull (1798).

Unfortunately our law is not only the constitution, but also hundreds of years of decisions surrounding it. Makes it hard for any layperson to actually know what the law is!

> Period, end of story.

Despite flailing politicians on both sides of the aisle, the Constitution is not as clear-cut as that.

The Supreme Court pointed out that the law was unconstitutional. So the effects of the law over the past 5 years were illegitimate, and should probably be fixed.

Note that the part of the law that restricted its applicability was unconstitutional. The ability to offer this tax break, period, is not.

Thus, the logical resolution would be to allow those unconstitutionally barred from receiving the benefit to file for retroactive benefits. However, this would allow pretty much any company located anywhere to file for the benefit (at least to my reading; IANAL), completely defeating the purpose of a tax law that encouraged CA businesses and potentially bankrupting the state.

So: someone ignored the spirit of the law and exploited a loophole to get themselves a bigger tax break and instead broke the entire system for everyone. California was stuck between a rock (allowing for pretty much everyone to file for retroactive benefits) and a hard place (nullifying previous year benefits for those who received them).

Nice job, guy.

This isn't a retroactive tax law, its the implementation of a court striking down as unconsitution a statute allowing for a certain set of exemptions and deferrals from a pre-existing tax.

A lot of the comments are characterizing this as a money grab by the state.

To me, it sounds more like the unintended consequences of a clever lawsuit and/or a poorly-crafted piece of tax-break legislation. People should be advised that California has a lot of clever lawyers who work to find and exploit holes in legislation.

The original provision gave preferential treatment to CA residents, which the courts ruled to be unconstitutional: a violation of the Interstate Commerce Clause.

The provisions in California law regarding the 80 percent asset and payroll requirements were found to be unconstitutional in August 2012 by the California Court of Appeal in Cutler v. Franchise Tax Board (FTB). The court's decision made California's entire QSBS statute invalid and unenforceable. As a result, all QSBS gain exclusions and deferrals previously allowed under California law became invalid. It is important to note that the court's decision in Cutler did not change the federal treatment of QSBS. (Source: https://www.ftb.ca.gov/law/Qualified_Small_Business_Stock_an... )

So the California FTB (and the rest of the states participating in the UDITPA Multistate Tax Compact) use the original "loophole" as a means to essentially siphon off a greater portion of the tax revenue from the occurrence of interstate commerce, and to keep it in the respective state. Washington, Oregon, California all participate (Source: http://www.startuplawblog.com/2012/08/17/interstate-business...)

This would be fine all fine and dandy, but for the fact that most of the "startups" or QSBs that benefit/ed from this exception derive/d revenue from multi-state commerce, on the Internet. This has made it and makes it more difficult for those businesses trying to do their "startup" thing out of state to compete with those here who get more tax breaks to re-invest. Interestingly, most of the VC money - over HALF of all venture capital in the USA -- goes to businesses in California. This is kind of messed up. (Source: http://news.cnet.com/8301-13846_3-20010486-62.html)

So looking at the bright side -- this should encourage startups to start places other than CA.

[Edited to include info about UDITPA in response to dragonwriter's comment]

The FTB doesn't write the law, the legislature wrote the law. And it was a California court, not a federal court, that ruled the statute unconstitutional (the "California Court of Appeal" isn't a federal court, its the first-level appellate court in the California state court system.)

But to make the cancellation retroactive for 5 years makes it seem to be a money grab to me. Why not just cancel for now and in the future?

For the same reason people can appeal their conviction if the law they were convicted of was found unconstitutional: it's as if the law never existed.

Because then there would be a flood of revised tax returns from corporations previously excluded in past years.

Probably this is not the last we have heard of this story.

Come to (western) Michigan. We have new corporate tax reforms that dramatically reduced liabilities (6% rate for C-Corps, flow-through taxation for LLCs and S-Corps, personal income tax rate of 4.3%), we have a 6% sales tax, low property taxes, very cheap housing (compared to much of the nation), well-educated workforce, and liberal gun laws (for the guy who wouldn't move to NY). Our 4.3% income tax rate is still lower than CA's QSB credit rate.

EDIT: Michigan's new corporate income tax also has an alternative rate of 1.8% for Qualified Small Businesses... those with net income under $1.3 million. If your corporation operates outside of Michigan and has no activity in Michigan itself, there is no corporate income tax.

Maybe you and the OP should come to Colorado instead... 4.63% flat-rate personal and corporate tax rate, and the 3rd best educated workforce in the country.


Boulder in particular was named "America's best town for startups" [1]. And if you're coming from California, you'll be right at home with the high property costs. ;)

[1] http://www.businessweek.com/stories/2010-04-22/why-boulder-i...

Forgot to mention - it costs $50 to form an LLC in Michigan and takes about a week (I've heard horror stories about forming an LLC in CA). $100 additional for same-day service. And you don't have to publicly disclose the LLC's members, only the registered agent, which can be an attorney or any other resident of the state.

Forming a Michigan corporation is $60 and has a few more public disclosure requirements.

A whole $50?! Colorado: $1.00 for your Articles of Incorporation (Corp) or Articles of Organization (LLC). It's online filing.. takes a day(?).


LOL, ok, you win.

And the weather. You guys have that great weather as compared to say, oh, San Diego.

And Detroit... oh, wait - Western Michigan. Should be a new state.

Indeed. Avoid eastern Michigan. Western Michigan is like a totally different state.

What are some good cities in Western Michigan?

Grand Rapids is the biggest of them. It's a nice area, decent and growing downtown, lots of activities, good housing stock, growing diversity, etc.

Kalamazoo is very nice too. The downtown is beautiful and the people there are very civic-minded: http://en.wikipedia.org/wiki/Kalamazoo_Promise

Vote with your feet; it's the only vote that matters in California these days.

We can't effectively manage a budget, give us more money!

Actually, California's budget is balanced and it expects a surplus in two years.


Only after doing things such as threatening to cut 300 million from education unless folks raised taxes (retroactively as well).

If your method of balancing the budget is always asking for more money, you haven't really balanced the budget.

What are you going to do in a few years when those tax hikes expire, and you suddenly lose the same amount of revenue? I look forward to a few years when we begin to hear the claim in that we need to make the temporary hikes permanent, because we are running out of money again.

(This is, btw, fairly similar as to how the federal income tax was created. It was originally temporary)

As for the surplus claims: Of course the guy who supported the ballot initiative is going to say it's going to run a surplus.

However, even the ballot initiative booklet mentioned the surplus claims are possibly false, as the kind of revenue they are depending on is very transient and hard to predict.

As for the surplus claims: Of course the guy who supported the ballot initiative is going to say it's going to run a surplus.

The independent Legislative Analyst's Office, which had previously said Brown's budget would have had a $1.9 billion shortfall in November, now says that it is roughly in balance due to changes in income tax:


If your method of balancing the budget is always asking for more money, you haven't really balanced the budget.

How is increasing revenues not a valid way of balancing a budget? And always asking for more money? Reagan raised the top income tax bracket in California from 7% to 10%. It now stands at 10.3%.

What are you going to do in a few years when those tax hikes expire, and you suddenly lose the same amount of revenue? I look forward to a few years when we begin to hear the claim in that we need to make the temporary hikes permanent, because we are running out of money again.

Considering most of the budget deficit is mostly due to California's substantial social safety net being engaged by the Great Recession, as long as the economy continues to improve, California will probably get by fine with the increased revenues of more people working and lessened burden of people applying for medicaid and unemployment insurance.

> The independent Legislative Analyst's Office,

I have no knowledge of the LAO, but the federal CBO (which I believe has a similar function, and is supposedly similarly independent) continuously makes projections that are worthless.

One of the reasons for this is that their mandate requires them to assume the current taxation regime; which means that whenever you do tax cuts (e.g. Bush), you do them "temporarily", which means that CBO estimates will necessarily assume they expire. Then you extend them, and -- tada, CBO is never right regardless of how well they do their work.

Politicians hacking the rules they set themselves. If it wasn't sad, I'd say it was entertaining.

What are you going to do in a few years when those tax hikes expire, and you suddenly lose the same amount of revenue?

Assumes economic growth of exactly 0%.

It's only balanced based on projections. Check back in a year to see how realistic those projections were.

I'll be proud of California if it works out, but I have my doubts.

Well, sure, once you start passing retroactive taxes.

shouldn't that be "we take more money" ?

Well, to be fair, they did let people vote on it, so i like to present it as if it was a request.

But yes, you are technically correct :)

Well just a personnel preference, but I always go for accuracy before manners. It may make people uncomfortable but at least they WILL know why

Right on!

Unfortunately, my local campaign for renaming "leaders" to "rulers" has about as much success as RMS' re-acronyming DRM to "digital restriction management". Actually, even less than that.

I guess the way I see it is this. I imagine most startups don't have much profit, so therefore they won't pay much in taxes. If you are making a lot of profit and paying a bit more in taxes, it seems like the system is working. If these people are selling millions of dollars in stock options and complaining about having to pay more taxes on them, I have a hard time having sympathy. I'd love for my biggest problem to be figuring out how much more in taxes I owe on all the millions of dollars I made.

Capital gains taxes are going up by 50% in CA this year. That's a big hit to future angel rounds. I wrote about it here: http://jacobexmachina.blogspot.com/2013/01/the-fiscal-cliff-...

Am I missing something or has California crossed over into absurdity?

I don't understand why the VC and tech community in California stand for this stuff [1]. There should either be more lobbying by the seemingly powerful tech and vc community or mass exodus out of the state. I don't see either happening and I wonder why. Perhaps these things just take time.

Is CA killing the golden goose here?

[1] I am guilty too by living here at the moment, but I am a relative new comer to the state. The situation is completely baffling to me after being here for almost two years and am exploring other states at the moment.

I think part of the problem is there isn't a single other place which is objectively better than SFBA on every metric which matters to startup people, and yet people would prefer to stay together/have a critical mass of people.

Seattle, Boulder, and Austin are probably the most viable options right now, if you want more libertarian/sustainable government combined with the same overall feel of the Bay Area. It would be better if there were one place which was head and shoulders better than all the others.

Nothing really touches SFBA for VC, though, and Stanford is probably the world's best university for applied CS with startup involvement.

"Give us our targeted tax breaks or we'll leave for another state!". I like principled stands like this.

Does this apply to a Delaware corporation which happens to have offices ("do business") in California?

I doubt it - although you would still need to pay CA franchise tax ($800 minimum yearly). That's always been the case.

Linked article is about "sales of stock of a Qualified Small Business", which normally applies to tax residence of people who own the corporation, not the corporation itself.

Generally you pay taxes where you do business, not where you are incorporated, so probably.

The first comment on the OP also asks this question. Looking for something definitive here.

Come to New York! We're rolling in so much finance money we don't need to hit up small businesses.

Thanks, but no thanks. I've experienced New York's laws on intellectual property ownership.

Any programmer who thinks that they should have any right to have "their own time" and "side projects" should leave for a more friendly state. Like California.

I am not joking.

> Any programmer who thinks that they should have any right to have "their own time" and "side projects" should leave for a more friendly state. Like California.

In New York, you can negotiate a contract to get this clause - it's quite common. The only difference is that contracts without the exemption (ie, total assignments) are considered enforceable, whereas in California, they aren't. That doesn't mean that Californian contracts don't sometimes include those clauses anyway - from a legal strategy standpoint, it's in the company's best interest to do so.

Furthermore, my understanding is that this Californian precedent is rather limited in practice, since it's easy for a company to claim that your product is related to something that the company is doing or is planning on doing (and hard to prove otherwise), and similarly easy for them to claim that you've used company resources and/or time to do the project, as people sometimes do without thinking about it. When you start picking it apart, the Californian exemption is very narrow in letter, and even more so in practice.

In short, you're definitely not missing out on anything automatically by coming to New York, because it depends on what kind of a contract you negotiate. And Californian law won't get you home free either, because there are too many other variables at play, and too many other ways for them to wiggle around the law - they just need the incentive to do so.

The difference is much larger than you acknowledge.

First of all in California it is against the law to fail to inform people of their rights. Thus even in the cases when contracts include those clauses, the impact is severely watered down.

Secondly in New York, even contracts without these clauses by default have them implicitly included.

Thirdly the "claim we're working on everything" issue is real in California, but only for people working for large corporations. People working for small companies can usually make a good case that they are working on something different.

Fourth, there is a real difference in culture. In California it is common for people to do things like"start companies on the side", and therefore the natural response upon finding that someone has done so is to not try to contest it unless they have specific cause to. By contrast in New York this is not common, which means that employers are much, much more likely to try to explore their legal options.

I am sure that it is possible to live in New York, sign careful contracts, and find people who will be supportive. However if management changes, or different lawyers examine those contracts, or someone just does the calculation that you won't be able to afford to assert your rights, I believe that your odds of running into trouble in New York are significantly higher than in California.

Maybe I'm overreacting. But once burned, twice shy. This is among the reasons why I never again want to live in New York. (The weather would be another. The fact that it never quiets enough for me to sleep soundly would be a third.)

But can you a force the lawyers to enforce your rights in this case a company with deep pockets can drag out a law case for a long and costly time.

Decades in some cases the long running section A pension case went on for well over a decade in the UK conveniently for the employer that meant that the people effected by the decision started dieing off reducing the cost.

Could you elaborate a bit more on your experiences?

No. But it is easily findable online.

As someone who works for a small business in New York... hahahahaha. Ha. Haha.

Your state's gun laws prevent me from ever living there.

Don't come to New York, then. If your access to rifles is more important than the tax codes your startup may or may not face, stay where you are.

I think it might be something more about the fact that New York's interpretation of the 2nd amendment differs so greatly from mine that I am fearful for what they might do in regards to other constitutional amendments.

As a side note, I cannot move to most cities in Colorado because I happen to have two dogs who are banned by their breed. The point is, there is way more to the conversation than just taxes alone.

Seriously, I've been throw into the gulags and tortured at least 5 times while living in NY. It's awful - just awful. Don't come here, whatever you do.

Don't say I didn't warn you!

I've been throw into the gulags and tortured at least 5 times while living in NY

Seriously, stop going to bars around Times Square. You should know better by now.

I feel like this joke would also work for "rush hour subways" in place of "bars around Times Square" :)

To other child post: FUD. What the heck does NY have to do with the federal constitution? It takes 3/4 of states to pass a new amendment, so it's not like NY can do it on it's own. The second amendment limits the federal government from passing certain kinds of laws.

Completely false. Like much of the rest of Bill of Rights, the second amendment has been incorporated (see Chicago vs McDonald), and thus held to apply to the states.

It slightly irritates me when people say this, because usually those people have no problem accepting that other amendments that they hold to be more important (e.g, the 1st) apply to the states.

> It slightly irritates me when people say this, because usually those people have no problem accepting that other amendments that they hold to be more important (e.g, the 1st) apply to the states.

Heck, people try to apply the 1st amendment to private corporations & online forums set up by 14 year olds.

Exactly. A sensible position is: "Second amendment recognized an individual right, but I don't think New York's gun laws infringe on it any more than their copyright right laws infringe on first amendment rights." Of course, now you'll need a rational argument to back that position up. I personally think this will be a rather difficult case to argue, whereas most parts of a less restrictive assault weapon ban (like the one they had on books before) could probably withstand immediate scrutiny.

Similarly, gun enthusiasts can't claim that all gun control is unconstitutional. The easy days of magical thinking (whether one side arguing "Second amendment does not protect an individual right!" or the other side arguing "Thomas Jefferson wrote ``Thou needeth an HK-416 with a magazine of thirty cartridges lest black helicopters invade thy farm''!") are done.

Oh, so I guess there would be no recourse should NY pass a law outlawing newspapers, or barring the assembly of more than two people at any time? The Constitution absolutely does limit federal and state (and county, and municipal, and every) government. It clearly limits the federal government more but to say the second amendment isn't limiting states (either via text or SCOTUS case law) is not true.

I believe the poster is referring to Cuomo's press conference this morning (1/15) where he announced his intention to enact a ban on rifles, sales of rifles, ammunition, restrict magazine capacity and so on.


> To other child post: FUD. What the heck does NY have to do with the federal constitution? It takes 3/4 of states to pass a new amendment, so it's not like NY can do it on it's own. The second amendment limits the federal government from passing certain kinds of laws.

This is completely wrong. Not just for the second amendment, but for pretty much every other Bill of Rights amendment that guarantees a "fundamental right" (including the first, which begins with "congress shall pass no law").

Whether or not you like the idea of private gun ownership (if you don't, you have a lot of room to argue about what is protected under the second amendment)[1], doing away with 14th amendment incorporation would be a horrible idea (Remember Jim Crow? Remember when women could not obtain an abortion, period?)


http://en.wikipedia.org/wiki/Incorporation_of_the_Bill_of_Ri... -- The doctrine

http://en.wikipedia.org/wiki/McDonald_v._Chicago -- The ruling that incorporated the second amendment. Interestingly Justice Thomas' opinion (in favour of McDonald, but opposed to due process incorporation) is interesting in that it demonstrates an originalist constitutional view (opposed to the view everyone else uses) which is typically associated with conservative politics, despite the fact that joining the majority in a "due process" incorporation would mean probably mean less gun-control laws (a typically conservative opinion) than in using "equal protection" incorporation.

tl;dr 14th amendment incorporation is probably the most important evolution of US constitutional law in terms of expanding actual civil liberties as experienced by US citizens. It is not okay to be ignorant of it.

[1] Second amendment as an individual right is fairly new: first such reading in 2008 (Heller) as opposed to 1919 for first amendment -- despite, of course, both amendments dating back to the 18th century. As a result, there's not much good case law on books: it's very hard to argue a second amendment case from a criminal trial and yet it's also hard to find civil litigants with standing to sue such as Heller. It's safe to say that complete weapon bans or bans that make self-defense impossible are unconstitutional and that bans on fully automatic weapons (like the 1934 National Firearms Act) are constitutional. However, that's not where most of the debate is happening, so a clear standard has not yet evolved (but there are more cases working their way up through the federal courts).

Take a look at the Great State of Texas. It is quite free when it comes to gun laws. For example, I believe it is the only state in which you are allowed to use lethal force to defend your property.

And there's the added benefit that if you learn some basic Spanish, you can hire illegal immigrant labor to do all your housework and gardening for a pittance (this can be done without knowing Spanish, but then you end up wasting money on a middleman, and there are other benefits to knowing Spanish in Texas anyway).

More than half of the states in the Union have some sort of Castle Doctrine or Stand Your Ground law [1]. It's not just Texas.

[1] http://en.wikipedia.org/wiki/Stand-your-ground_law#United_St...

There's a difference between just having a Castle Doctrine and being allowed to use lethal force. Because if you are not allowed to use lethal force, you always have to worry about the consequences of killing the intruder.

Having grown up in Wyoming.

While Wyoming is definitely not a tech hub, they do protect your right to use lethal force to protect your property.

Plus if they steal your horse, you can hang them and shoot them. win/win

> Take a look at the Great State of Texas. It is quite free when it comes to gun laws. For example, I believe it is the only state in which you are allowed to use lethal force to defend your property.

Actually a "duty to retreat" is rather rare. In California, there's a right to use lethal force if you are in a situation where a reasonable person would believe they are in risk of life or limb.

I also don't think you can shoot someone for just being on your property in Texas when there's no reason to suspect they are a danger to you, or if they're just trying to steal your car while you're inside the house, etc...

At this point, mentioning gun legislation is almost an extension of Godwin's law.

As compared to California?

It's feasible (perhaps easier than it should really be) to legally buy a handgun in California: take a test (written test and basic handling of the firearm), pass a background check, 10-day waiting period, and a limit of one per month.

Far more difficult in New York: I've heard "must wait six months", "need to document a specific reason", and both... The overall message being "don't bother."

Congratulations :) That's one of the main factors in why I'm moving in the next year or two. It's a toss-up between WA (which has good gun laws) and TX/NV which have excellent gun laws. (I'll probably be an FFL-07 anyway, so WA's laws aren't substantially different for me, but for someone who wants regular civilian ownership of SBRs, WA is inferior to NV or TX)

and you can't legally buy a Big Gulp. Seriously, and city/county/state govt that would do that, you can't trust them with your livelihood.

If the government thinks they need to tell you how big a drink you can have, and the citizens agree with it, there's something seriously wrong with both. OTOH, we have plastic bag ban in California and lightbulb ban federally, if I remember correctly, so it's not that easy nowdays to find a place to live where there's not something seriously wrong with it.

You remember incorrectly.

There is no statewide plastic bag ban in California (though some California municipalities have restrictions on plastic grocery bags).

And there is no federal lightbulb ban (there is a federal rule providing energy efficiency standards for certain categories of lightbulbs which sets increasing standards including ones which many currently-popular incandescent bulbs would fail; the intent of the bill was to encourage development and sale of more efficient lighting devices, which it has done.)

>>>> There is no statewide plastic bag ban in California

OK, I agree - I should have said "in many places in California". Using weasel words like "restriction" - as if only "very dangerous assault bags" were prohibited but there was no problem with regular plastic bags - does not change the fact the bags are banned - in SF, in San Jose, in LA county and in some others. In fact, in most places the regulators themselves flat out call it a "ban" in their explanatory materials.

>>>> And there is no federal lightbulb ban (there is a federal rule providing energy efficiency standards for certain categories

Which is effectively a ban on certain - very widely used - categories of lightbulbs. The fact that the it is called more verbosely does not change the fact that it is a ban. The intent also does not change the fact - I'm sure every governmental ban has tons of supposedly good intents behind it, it does not stop being a ban because of it.

Under Bloomberg, NYC has turned from a police state into a full-fledged nanny state.

To be fair, it's also much nicer to live in (at least for white people) than it ever has been. New York before it became a police state was basically Gotham City.

What's the marginal improvement under Bloomberg vs. Giuliani's last year in '01? I remember NYC as being in pretty good shape by that point. Has livability improved substantially because of the Bloomberg Nanny State stuff? Smoking bans are pleasant for some, but most everywhere has those now.

Though I do have the impression that Bloomberg has done yeoman's work on public education.

Unless you have certain melanin levels, in which case it is still a police state too.

Oh, it's still a police state as well, no doubt. It has probably gotten worse under Bloomberg.

NYC has the most outrageous taxes in the country. You might as well be in France giving up 75%.

Yeah, it's rough. After federal, SS/payroll, NY state and NYC residential taxes, I take home 57.95% of my salary.

I don't have the energy to find which state would give me the best deal, but I seriously doubt it's NY. :-)

Probably Texas, or some Midwestern state

salaries are a lot higher here than in a southern/midwest state though (largely driven by the crazy costs of housing).

The cost of living is brutal here; e.g. $100K in NYC really isn't that great.

Don't forget to factor in the savings from not needing a car.

I live in the Midwest and do not own a vehicle, some cities here have pretty good public transportation!

Stop spreading FUD. You will never give up 75%, it was intended as a marginal rate AND it was even dismissed by the constitutional council.


No way is it $5,495/month in NY for $100k. $4,829 at best for $100k. With the expiration of the payroll tax, your take-home for NYC for over 100k is roughly 58% for the year.

But then again there might be some tax magic I'm missing.

Yeah, I can't figure out how to use the internet.

In NYC, including city tax, it's $5,203 versus $5,289 in California. If you live in NJ or Westchester, it's $5,495.

That being said you can live in New York City and get much better public services than say living in Silicon Valley. $100 per month for a MTA pass versus $100 a month for car insurance alone, etc.

California is now the only place in the nation where moving to NYC may lower your tax rate! (We have the top marginal income tax rate - go us!)

Austin, TX would love to have you.

To me this is a symptom of the twisted politics around taxation in the US. You have one very powerful group that is continually fighting to lower or eliminate taxes and another somewhat less powerful group that wants to bring in enough tax money to fund government services. One side cuts taxes or refuses to raise them and the other side finds new things to tax or other taxes to raise.

Normally such a tug of war is not an issue and is basically a natural consequence of a functioning democracy but in the US it has gone to the extreme.

Personally I blame the anti tax group. They seem to have no use for logic or evidence and only demand more cuts regardless of the previous ones or the consequences. They are refusing to provide the funds necessary to run a modern government.

In California, our money goes to retired union worker's pensions, not current public services. Our most powerful lobbying group by money spent is the state teacher's union, followed by the state and municipal employee worker union. We have the highest taxes in the nation, poor public services, and massive debt.

Pro-tax types should stop carrying water for bad governance. I am one of those anti-tax people you say "has no use for logic and evidence", and I am happy to pay taxes when I feel it is going to good use. But I am not willing to pay taxes so that politicians can turn around and give it to the unions that own them at the expense of the public good.

It's funny that most of the world's entrepreneurship is in my country, where people can keep most of their money earned to fund new ventures (for now).

So, there can't be a disagreement over what the definition of what a modern government is or what's required to run it? What if my idea of a modern government costs less than your modern government?

What if my modern government gives out free money taken from people, through high taxation, with screen names that start with j? Can I tell you to shut up because you are refusing to provide the funds necessary to run a modern government?

Keep in mind that different people have different ideas about what is needed in government. Debates over taxation is just simply a symptom of that.

So the side you disagree with has no use for logic? There is definitely some 'starve the beast' mentality going on, and IMHO it's needed. Government spending is out of control, and taxes overall are too low. The problem is that both sides need to give in a lot if things are ever to be fixed. Neither will admit to any problem and just point fingers at the other.

They are refusing to provide the funds necessary to run what you think a modern government should do.

Opinions differ.

Sorry, it's not what I think. I am basing my analysis on the many polls I have seen on what government services people expect. For example a large majority of people expect to have Medicare available to them when they turn 65. I am not talking about European style socialism.

Taxes have zero impact on my decision to start a company in California.

Absurd. Imagine they were 100%. You wouldn't start a company there. What if they were 90? You wouldn't start a company there (assuming your compensation is not much much higher than it would be in other areas minus taxes.) Decrease this until it reaches the point at which you're ok, weighing all the pros and cons of there or elsewhere, with starting a company there. Of course it's not true to say they have no impact on your decision, but rather at current levels, their impact is deemed acceptable compared with alternatives.

How come?

Perhaps for other more compelling reasons he has decided to start a company elsewhere.

Houston, we have a spending problem.

It's got nothing to do with increasing tax revenue - it's petty overreaction on behalf of the responsible state body - the FTB. I quote liberally from the article:

> It turns out that a few years ago, someone sued the Franchise Tax Board over being denied the right to claim the QSB benefit [Cutler v. Franchise Tax Bd., 208 Cal. App. 4th 1247 (2012)]. 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.

That's actually fairly common in decisions striking down agency interpretations. Sometimes a court will order a specific remedy, but other times they only rule that the existing regulation was illegal but leave open multiple ways of curing it. In the case where the problem was that a regulation impermissibly distinguished between groups that the law didn't allow distinguishing between, there are two ways to fix it: put everyone into bucket A, or put everyone into bucket B. And in fact in either case you have to do it retroactively, to fix the ruled-invalid error of treating the two groups differently.

This is not a decision striking down an agency interpretation.

The decision explicitly found that the statute supplying QSB benefits in California "is discriminatory on its face and cannot stand under the commerce clause". Had an agency interpretation been struck down, it would be fair to say that (within the bounds of the court decision and the governing statute) the FTB was free to come up with a new interpretation. But when a statute is struck down, it can only be fixed by the legislature. An administrative agency can't fix constitutional defects in statute: they have no authority to do so.

(The court could have severed the unconstitutional provision and preserved the rest of the statute, and there is some indication in the decision that they probably would have done so rather than ruling the statute facially invalid if they had been reasoning clearly and consistently. But they didn't, and the FTB isn't really free to apply what the court should have ruled instead of what the court actually ruled.)

Its true that its not about increasing tax revenues, but it doesn't seem to be a "petty overreaction" either, its the FTB applying the Court of Appeals determination that California's QSB benefit statute violated the Constitution (the exact words from the holding regarding the statue are that "The statute is discriminatory on its face and cannot stand under the commerce clause.")

The FTB doesn't have the power to arbitrarily rewrite unconstitutional laws to remove the parts that have been found to make them unconsitutional -- either the court (by explicitly severing the unconstitutional provision) or the legislature would have to do that.

The court of appeals case is at http://www.leagle.com/xmlresult.aspx?xmldoc=In%20CACO%202012... and the FTB's description of its application of the decision is at https://www.ftb.ca.gov/law/notices/2012/2012_03.pdf and the FTB's FAQ on its action is at https://www.ftb.ca.gov/law/Qualified_Small_Business_Stock_an...

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