Senate passes Wieckowski bill to stop corporations from writing off punitive damages on their taxes

Taxpayers should not subsidize corporate fraud or malice

May 31, 2017

Sacramento – Corporations that break the law and are ordered by a jury to pay punitive damages for their outrageous misdeeds will no longer have the ability to write off such penalties on their state tax returns if a bill by State Senator Bob Wieckowski (D-Fremont) becomes law.  Wieckowski’s SB 66 passed the Senate tonight and now heads to the Assembly.

“I congratulate my Senate colleagues for understanding how offensive it is to reward a tax break to corporations that have shown no regard for the law or the health and safety of others,” said Wieckowski, a member of the Senate Judiciary Committee.  “Punitive damages are only awarded in the rare circumstances when a court decides the defendant’s actions are so dangerous and objectionable that there needs to be additional punishment that sends a message to deter similar behavior in the future.”  

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.  But a 1980 Internal Revenue System administrative ruling allows corporations to write off punitive damages on their tax returns as a cost of doing business.  This defeats the purpose of punitive damages and reduces the punishment of the defendants’ reprehensible actions.

A northern California judge recently imposed punitive damages on Bank of America for “brazen and heartless” behavior against a couple seeking a loan modification for their house.  The couple went through a multi-year nightmare and the judge concluded that the bank “had no intention of acting in good faith.”

In another case, a worker was forced to resign her position at a San Bernardino health clinic for refusing to falsify patient and clinic data and charge patients for services that were already covered by insurance.  The clinic was hit with punitive damages after it was determined that it acted with “malice, fraud and oppression.” 

An auto parts retailer was hit with punitive damages after a court determined the company retaliated against a female manager for becoming pregnant, demoting her after she gave birth and then firing her when she complained about the discrimination.  At trial, a former district manager testified that a vice president reprimanded him for having so many women in management positions, telling him, “What are we running here, a boutique? Get rid of those women.”

SB 66 is supported by the California Tax Reform Association, Consumer Federation of California, Common Sense Kids Action, California Budget & Policy Center, California Public Interest Research Groups, Disability Rights California, many labor organizations and the American Civil Liberties Union.

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