Cutler

SUMMARY

The trial court upheld, against a commerce clause challenge (U.S. Const., art. I, § 8, cl. 3), the constitutionality of Revenue and Taxation Code provisions allowing an individual California taxpayer to defer capital gains on the sale of stock in a qualified small business if the taxpayer used the gain to purchase stock in another qualified small business. The deferral was available, however, only if the stock sold and purchased was issued by corporations that used 80 percent of their assets in the conduct of business in California and that maintained 80 percent of their payrolls in California. (Rev. & Tax. Code, § 18152.5, subds. (c)(2)(A), (e)(1)(A) & (9).)

Under the teaching of the high court in Fulton Corp. v. Faulkner (1996) 516 U.S. 325, 330 [ 133 L.Ed.2d 796 , 116 S.Ct. 848 ] (Fulton), we are bound to and do conclude that, because the statute affords taxpayers a deferral for income received from the sale of stock in corporations maintaining assets and payroll in California, while no deferral is afforded for income from the sale of stock in corporations that maintain assets and payroll elsewhere, the deferral provision discriminates on its face on the…