SB 66 to eliminate tax write offs for corporate punitive damages passes committee

Wieckowski wants to end tax breaks for egregious corporate misdeeds

March 22, 2017

Sacramento – State Senator Bob Wieckowski (D-Fremont) is seeking to eliminate the ability of the worst-behaving corporations to write off on their tax returns punitive damages a court has ordered them to pay victims for egregiously and knowingly violating the law.  Wieckowski’s Senate Bill 66 passed the Senate Governance and Finance Committee this morning.

“Punitive damages are used when a defendant’s actions are so egregious that the compensatory damages to victims are not enough and the court determines as a society, we need to both punish the defendant for the outrageous actions and make an example of a corporation to send a message to would-be future wrongdoers,” said Wieckowski, a member of the Senate’s Judiciary Committee.  “To award a company a tax break when its reckless and dangerous disregard for the law has resulted in the death or maiming of customers is unconscionable.”

To award punitive damages, a jury must find that there is clear and convincing evidence that the defendant acted willingly or knowingly with malice, oppression, or fraud.  Yet because of a 1980 Internal Revenue System administrative ruling, corporations are able to write off their reprehensible behavior on their tax returns as a cost of doing business.

For example, a substantial amount of the punitive damages paid by BP in the Deepwater Horizon explosion and environmental disaster were deducted by the company, basically forcing United States taxpayers to subsidize much of the cleanup effort. In other cases, automobile companies have been slapped with punitive damages after their customers were killed in accidents caused by defects known by the manufacturers.  Drug companies that failed to notify users about dangerous side effects are also allowed to deduct these penalties on their taxes.

“As a matter of principle, punitive damages should not represent the cost of doing business in California,” said Samantha Corbin, legislative advocate for the California Tax Reform Association.  “The entire purpose of such damages is to punish the worst of the worst behaviors, and to deter the type of egregious misconduct that can endanger the public and harm individual rights.”

SB 66 next heads to the Senate Appropriations Committee.

Senator Wieckowski represents the 10th Senate District, which includes southern Alameda County and northeast Santa Clara County.