California Tax May Speed Exodus to Texas

Thursday, 21 Feb 2013 01:52 PM

By Cyrus Afzali

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A tax levied on California entrepreneurs is proving to be a boon for Texas as the Lone Star State continues to try to lure companies away from the West Coast.

Already it is leading to an increase in inquiries from companies that are considering taking up Gov. Rick Perry’s invitation to relocate, CNN Money reports.

California’s Franchise Tax Board has not only eliminated a tax break on capital gains for entrepreneurs and investors, it has announced the tax would be reinstated retroactively, making anyone who benefited from it liable for unpaid taxes and interest back to 2008.

Editor's Note: Use This Single Loophole to Pay Zero Taxes. See Video

This tax break, first established in 1993, gave California entrepreneurs and investors in early-stage companies a partial exclusion on state income tax in connection with the sale of stock in a qualified small business.

A group of entrepreneurs have started California Business Defense, which promises to fight what it calls “overbroad” actions by the FTB.

Ethan Anderson, co-founder and chief executive of MyTime, said the changes will make entrepreneurs think twice before opening a new business in California. He called the change “a slap in the face,” given the positive benefit that entrepreneurs have had on the state’s economy.

Texas officials are wooing California businesses, which was one reason Gov. Rick Perry earlier this month took an economic development trip to the Golden State. Texas economic development officials also purchased an ad campaign in which Perry says, “Building a business is tough. But I hear building a business in California is next to impossible.”

AustinTechnology Council Chairman Joel Trammel reports his office is continually fielding calls from businessmen and investors who are considering a move to his city. He said the decision is made easier by the fact that a number of large firms already have a presence in Austin. Apple and Samsung are just two companies that have pledged to expand their facilities in the Texas capital.

John Kinzell, who founded his third company, Xeris Pharmaceuticals, in 2010, chose Texas for his latest venture despite living in California for 25 years. He told CNN a number of entrepreneurs are following his lead.

“It’s hard to swing a cat around without hitting someone from California who’s moved here or is at least looking,” Kinzell said. “We have more companies here than talent, so they’re having to pull a lot from California.”

Of California, Kinzell said, it’s become an unfriendly state in which to run a company.
“Once that sort of bleed starts, it gets hard to reverse it.”

Editor's Note: Use This Single Loophole to Pay Zero Taxes. See Video

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