Opinion ID: 2614059
Heading Depth: 3
Heading Rank: 2

Heading: Enactment History

Text: Our conclusion is reinforced by the enactment history of sections 17063.11 and 18162.5. As enacted in 1981 (Stats. 1981, ch. 534, § 2, p. 1903), section 17063.11 provided: For the purpose of Section 17063 [which listed the items of tax preference that were taxed as preference income], that portion of capital gains attributable to the sale of small business stock, as defined in Section 18161.5, is not an item of tax preference (italics added) to be included in preference income. [9] Section 18161.5, enacted as part of the same statute (Stats. 1981, ch. 534, § 3, pp. 1903-1904), defined small business stock without any limitation as to the date when the stock was acquired. Thus, it is indisputable that, as originally enacted, section 17063.11's exemption of small business stock capital gain from taxation as preference income applied without regard to when the taxpayer acquired the stock. [10] The same 1981 statute that enacted sections 17063.11 and 18161.5 also amended section 18162.5 to exclude from taxation as ordinary income the capital gain on small business stock held for more than three years. (Stats. 1981, ch. 534, § 4, pp. 1904-1905.) Unlike the preference income exclusion of section 17063.11, however, section 18162.5 limited the ordinary income exclusion to gain from small business stock acquired after the operative date of the act [i.e., September 16, 1981]. (Stats. 1981, ch. 534, § 4, p. 1905.) In 1983, the Legislature took the definition of small business stock that had appeared in section 18161.5 and incorporated it into section 18162.5 as new subdivision (e), simultaneously repealing section 18161.5. (Stats. 1983, ch. 488, §§ 64-65, pp. 1929-1931.) In 1984, the Legislature further refined the definition of small business stock by adding subdivision (e)(6) and subdivision (f) to section 18162.5. (Stats. 1984, ch. 1575, § 2, pp. 5544-5546.) Neither of these changes restricted the definition of small business stock to stock acquired after a certain date. Also in 1984, the Legislature amended section 17063.11 to delete the reference to small business stock as defined in Section 18161.5 and replace it with small business stock as defined in Section 18162.5. (Stats. 1984, ch. 938, § 8, pp. 3199-3200.) (3) This review of the enactment history of section 17063.11 and 18162.5 demonstrates that from the outset the exclusion of small business stock capital gains from preference income applied regardless of the date when the taxpayer acquired the stock. The acquisition date restriction and statutory structure on which the FTB now relies were originally part of a different statute (section 18162.5) that related only to ordinary income tax, did not purport to contain any definition of small business stock, and was not incorporated by reference into section 17063.11. Given this enactment history, the Court of Appeal erred in relying on legislative committee reports and the general statement of legislative findings of the 1981 enactment to reach the conclusion that subsequent 1983 legislation impliedly changed the meaning of the definition of small business stock simply by transferring that definition from section 18161.5 to section 18162.5. We have been directed to no evidence that would support the conclusion that in 1983, when the Legislature moved the definition of small business stock from section 18161.5 to 18162.5, it intended the preexisting portions of section 18162.5 to suddenly, implicitly, and silently modify the express terms of that definition. Had the Legislature intended to impose an acquisition date limitation on the preference income exemption for small business stock, it could have achieved this result simply and unambiguously by incorporating the limiting language of subdivision (d) either into the definitional language of subdivision (e) or into the text of section 17063.11. By keeping the acquisition date limitation separate from the definitional language, and from every provision dealing with preference income taxation, the Legislature has imposed no acquisition date limitation on the preference income exclusion under section 17063.11. [11]