California small business owners ordered to pay back millions in tax breaks

The exterior shot of the State Capitol in Sacramento, California. (reuters)

Small business owners in California who were promised big tax breaks by the state government are now being ordered to pay possibly thousands in back taxes after a court ruling last year.

CBS Sacramento reports the state promised the tax breaks for opening certain kinds of businesses five years ago, but a court ruled the practice unconstitutional in December.

Now, the California Franchise Tax Board wants their money. The station reports an estimated 2,000 small businesses will be forced to pay up their retroactive taxes, totaling as much as $120 million. Some businesses will face a bill of as much as $200,000.

“It sends a message that you can’t trust government,” Ken DeVore with the National Federation of Independent Businesses tells CBS Sacramento. “If you comply in good faith with the rules, they can go back and penalize you.”

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California Sen. Ted Lieu, D-Redondo Beach, is fighting back against the taxes. His bill to block the taxes passed a Senate panel last month, and now faces a fiscal review from the Senate Appropriations Committee.

“When we make a promise, we have to uphold it,” Lieu tells CBS Sacramento.

Lieu told committee members before the bill passed he believed it is unfair to punish taxpayers for following the law as it was written at the time.

“They obviously can’t go backwards five years in time and change their investment or change what they did.” he tells CBS Sacramento. “They are stuck with what they did and it’s unfair to penalize them.”

The California Franchise Tax Board had no comment on the legislation to CBS Sacramento, but a department review stated they had not taken a position on it.

Click for more from CBS Sacramento.