Entrepreneurs face back tax bills to '08 In late December, for what it said were legal reasons, the Franchise Tax Board announced that it was not only eliminating a 20-year-old capital gains tax break provision, but it would be dunning up to 2,500 business owners and investors for tax payments, plus interest, going back to 2008. In other words, not only are most of these investors and entrepreneurs faced with increased state income and sales taxes - not to mention the federal bump for those making more than $400,000 a year - they're going to have to cough up as much as five years' worth of capital gains taxes (current rate 9.3 percent) for which they had long been told they were not liable. Overstreet is among those entrepreneurs who initially benefited from the state's qualified small business tax exclusion but who are now facing large tax bills for the state to recoup $120 million in back taxes. The small business tax exclusion, passed in 1999 and intended to spur investment in California startups and small businesses, allowed for the exclusion of 50 percent of capital gains earned from investments in businesses valued less than $50 million that have 80 percent of their staff and assets in California. Condemning the action as "deeply unreasonable" and "immensely unfair," state Sen. Ted Lieu, D-Torrance (Los Angeles County), demanded in a Jan. 28 letter to the Franchise Tax Board that the decision to collect taxes retroactively be reversed. "The Qualified Small Business tax benefit provided a real boost to entrepreneurs and it is unfortunate that the court ruled it unconstitutional," said a spokesman for the governor's Office of Business and Economic Development, or Go-Biz, which seeks to attract and retain investment and businesses in California.