The California State Senate yesterday approved a measure providing relief (albeit only partial relief) to those taxpayers facing retroactive tax assessments by reason of the Cutler decision. In Cutler v. Franchise Tax Board the California Court of Appeal held that the California tax incentives relating to the sale of qualified small business stock discriminated against interstate commerce and were therefore unconstitutional.

The measure provides the affected taxpayers with only 75% relief (38% of the gain, instead of 50%, would be excluded from income). For the remaining 25%, the measure would allow taxpayers to enter into 5-year installment payment agreements with the FTB. All penalties and interest would be waived. The retained 25% of the assessed tax is to help the State pay refunds to those out-of-state taxpayers who are now retroactively eligible to claim the incentives.