February 23, 2013

Another proposal to prohibit California taxpayers from deducting punitive damages

Once again, a California legislator has proposed a bill to prevent taxpayers from deducting payments of punitive damages from their state taxes.  Assembly Judiciary Committee Chairman Bob Wieckowski, D-Fremont, introduced the proposal, Assembly Bill 458

In his press release about AB 458, Wieckowski says the bill is designed "to prevent a tax loophole that allows companies to take a tax deduction when a court holds them liable for punitive damages."  His press release discusses only corporations---he says the purpose of punitive damages is "to punish the worst behavior by irresponsible corporations."  The text of the bill itself, however, says nothing about corporations.  It would apply to any California taxpayer who pays punitive damages. 

A similar bill was introduced last year (AB 1276) but failed to win the necessary two-thirds vote required for any tax increase.  Similar proposals were discussed on the federal level in 2009 and 2010, but failed to gain any traction.

This bill is not likely to fare much better.  As noted in the Daily Journal article (subscription required) about AB 458, "the bill currently has no committed sponsors."