Job Creator Bills Await Action by Governor

The September 27th CalChamber Alert Newsletter reported that a California Chamber of Commerce-supported job creator bill that stops drive-by lawsuits and another which creates a dependable tax environment are among many CalChamber-backed bills that passed the Legislature this year and now await action by the Governor.

 

• AB 227 (Gatto; D-Los Angeles) protects small businesses from shake-down lawsuits related to alleged missing or inadequate signage required by Proposition 65 by providing them with a 14-day window to address a signage violation in certain situations, thereby avoiding a private lawsuit. AB 227 received overwhelming unanimous support from every committee to review it, as well as the Assembly and Senate. 

• AB 1412 (Bocanegra; D-Pacoima) repeals the Franchise Tax Board’s (FTB) decision to retroactively tax small business investors who relied in good faith on the law when they made the decision to invest in California and use the Qualified Small Business tax incentive, which was recently found unconstitutional. 

Only one vote was cast against AB 1412 in its journey through the Legislature.

Proposition 65, approved by voters in 1986, enacted "The Safe Drinking Water and Toxic Enforcement Act of 1986," which is designed to protect California’s drinking water from chemicals known to cause cancer or birth defects, and to warn members of the public about the presence of those chemicals in their environment to help them avoid exposure.

Since its enactment in 1989, Proposition 65 has helped protect the public by incentivizing businesses to renovate their facilities, reformulate their products, and update their manufacturing processes to eliminate the use of listed chemicals.

Proposition 65 requires, among other things, that private businesses with more than 10 employees post warnings when they knowingly expose workers or the public to listed chemicals. These warnings can take the form of placards in business establishments where listed chemicals exist or are released into the environment, or as part of the labeling of a consumer product that contains a listed chemical. There are currently 774 chemicals on the list.

The benefits of Proposition 65 have not come without a cost to the economy, however. AB 227 addresses one very avoidable cost that results from the practice of a handful of law firms targeting businesses with drive-by lawsuits alleging they do not have adequate signage required by Proposition 65. These lawsuits can easily cost several thousand dollars to litigate, causing many small businesses to settle out of court regardless of whether they actually needed to have signage posted at their business establishments, or if they posted a sign with the wrong size or wording by accident.

Many business owners rightly determine that signage is not warranted given the exposure levels of a particular chemical at their business establishment or that no listed chemicals are present at all, but this does not prevent a firm from making an allegation in a demand letter in order to pressure businesses into handing over a small settlement. Hundreds of businesses are targeted in these lawsuits each year, costing the state millions of dollars in lost productivity and jobs. AB 227 will help eliminate the inappropriate use of litigation while ensuring that the public receives Proposition 65 warnings when appropriate.

Since the 1990s, the "qualified small business stock" (QSBS) incentive had functioned successfully, spurring investment in California’s small businesses and startup companies. This incentive encouraged investment by allowing small business investors to exclude up to 50% of California’s capital gains tax upon sale of their small business stock.

When the 2nd District Court of Appeal invalidated certain provisions in the QSBS incentive last year, small business investors were faced with substantial retroactive tax bills.

AB 1412 is a well-crafted solution to resolve this problem. Entrepreneurs and investors chose to invest in California’s small businesses based in part on the state’s tax structure and incentives. The California business climate needs to be dependable for these investors, whose startup businesses fuel the state’s economic growth.

Stability and predictability—essential factors for small business investors choosing California as their headquarters for innovation—are especially important for California to maintain due to other states constantly trying to lure away entrepreneurs. 

AB 1412 would send a compelling message of reassurance to businesses, especially those within the high-tech and biotech communities where startup entrepreneurs are most prevalent, that California will honor its promises to those who invest in the state.

Inviting innovation is crucial to California’s economic recovery. AB 1412 will help California promote its business climate by encouraging future investment and growth while ensuring the state remains the best place for ingenuity and development.

By restoring fairness and predictability to California’s tax system, this bill lets small business investors know for certain that they can commit to California.

The CalChamber is calling on members to write Governor Edmund G. Brown Jr. and urge him to sign AB 227and AB 1412.