I do think there's a problem here of notice; I can't pretend I'd feel enthusiastic about having to pay 5 years of back taxes if I had been enjoying this tax break [edit: well it's a deferral rather than a break, but it's still a benefit]. But as you say, that's not up to the FTB; some other taxpayer will have to sue the state and argue successfully against retroactive taxation.
http://scholar.google.com/scholar_case?case=1745098991866615...
It's at the end of section 3 (pagination doesn't work properly on GS at present). Seems pretty unambiguous to me.
PS: I think the least you could do is update your blog post to remove the factual inaccuracies and correct the misapprehensions of your readers; most of the commenters at the blog page appear to have taken your explanation at face value.
Thanks for your interest in this matter, -Brian
Here's that link: http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Ass...
And here's the specific section I'm referring to:
Undecided Issues As noted previously,16 the same definitional provisions upon which the property and payroll requirement is derived for purposes of gain deferral under Section 18038.5 apply also with respect to qualification for gain exclusion under Section 18152.5(a). However, the Court of Appeal’s decision addressed the constitutionality of the gain deferral provision under Section 18038.5 only, and the facts before the court did not involve the gain exclusion provision under Section 18152.5(a). Thus, the court’s decision did not address whether the property and payroll requirement would cause the gain exclusion provision under Section 18152.5(a) to also be deemed unconstitutional. The court’s decision in Cutler also did not address whether the unconstitutional definitional language in Section 18152.5 (and the Section 18038.5(b)(1) crossreference to that language), upon which the property and payroll requirement is based, could be excised from the statutes or whether the decision would operate to invalidate both statutes in their entirety. Finally, as discussed above, the Court of Appeal declined to decide whether the taxpayer should be afforded the refund requested or whether some other appropriate remedy, if any, should apply and instead remanded the case to the trial court for further proceedings to address the remaining factual dispute and, if appropriate, the remedy.
EDIT: If talking to legal and tax expects leaves you only feeling "upset" instead of "seeking remedy", then it seems that what the FTB did is in accordance to the law, and that you simply don't like it.
You could probably argue that some of the other things in the ruling very strongly suggest that the Court didn't understand the scope of the statute and the impact of invalidating the statute as a whole and might have said something different if it was reasoning clearly, but even though it might be a result you favor in this case, I doubt you really want executive agencies to start applying court decisions based on what they think the court would have ruled had it been reasoningly clearly rather than what the court actually ruled.