A bill that would eliminate a retroactive tax increase on angel investors passed the Legislature on Thursday and was sent to Gov. Jerry Brown.

The bill overturns a state Franchise Tax Board decision late last year to retroactively remove a 50 percent break on capital gains taxes paid by angel investors. The board’s decision came after a court ruling invalidated the two-decades-old tax break because it only applied to investments in businesses with at least 80 percent of their total assets in California.

As a result of the board’s decision, thousands of angel investors received tax notices demanding payment of the full capital gains tax going back to 2008.

The legislation, SB 209 by Sen. Ted Lieu, D-Torrance, and Assemblyman Mike Gatto, D-Los Angeles, eliminates retroactive billing.

“This is about the rule of law,” Lieu said. “You simply cannot punish people for doing what we asked.”

Check out the Business Journal’s previous coverage of this issue:

Angel Investors May Get Tax Break Back

Support Grows to Retain Tax Break for Angel Investors