One of the big incentives for California business owners to operate their companies there was a partial state tax exclusion on sales of stock of a Qualified Small Business (QSB). The exclusion allowed business owners and investors in these businesses to exclude 50 percent of any capital gains acquired through the sale of stock.
Even with increased taxes in the state of California in recent years, the impact wasn't quite as damaging since owners could exclude half of the costs of capital gains. But due to a lawsuit filed against the Franchise Tax Board by a company that did not meet the requirements necessary to claim the exclusion, the California Court of Appeals retracted the exclusion for all business owners on sales of stock dating back to 2008.
These businesses will essentially be presented with a bill for the remaining 50 percent of those capital gains as well as interest.