California State Puts Retroactive Tax on Silicon Valley

By: Jeff Stewart  |   January 21st, 2013   |   Business, News, O Canada

Technology investors and entrepreneurs love Silicon Valley because it’s a hub of the most talented and successful startups in the world. This technology haven has been helped substantially by the state of California which offered tax deductions to those who either founded or made investments in startups working in the region. The tax deduction allows angels and entrepreneurs to leave out 50 percent of any gains on the sale of a “qualified small business” stock. As a result of that the capital gains rate reduces to 4.5 percent, which lures skilful persons from all over the world to setup and keep their businesses in Silicon Valley.

 

However, California’s state government has decided to eliminate this tax deduction and is purging the tax retroactively from 2008. So “Anyone who sold their California company in the past five years and took advantage of the tax deduction is now going to have to pay the tax, with interest,” as explained by the editor-in-chief of Business Insider, Henry Blodget.

 

Criticising the US state, Xconomy’s entrepreneur Brian Overstreet wrote that “California changed the rules after the fact, and that’s just not right. More importantly, the FTB’s radical action is going to send a terrifying message that will have the unintended consequence of driving young, growing businesses to friendlier environments. That’s the last thing that the state of California needs right now.”

 

It surely is a bad move by California state and it will send a negative message to the entrepreneurs and angles in Silicon Valley, but it may excite the Canadian government and people because it can divert several startups towards Canada, where they can still get tax deductions thanks to favorable government policies.

 

Source: TechVibes

Photo: TechVibes