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SB-66 Damages: income taxes deduction.(2017-2018)

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Date Published: 06/18/2018 09:00 PM
SB66:v98#DOCUMENT

Amended  IN  Assembly  June 18, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Senate Bill No. 66

Introduced by Senator Wieckowski

January 05, 2017

An act to add Sections 17226 and 24343.4 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. amend Section 3294 of the Civil Code, relating to damages.


LEGISLATIVE COUNSEL'S DIGEST


SB 66, as amended, Wieckowski. Income taxes: deductions: punitive damages. Damages: income taxes deduction.
The Personal Income Tax Law and the Corporation Tax Law allow various deductions in computing the income that is subject to the taxes imposed by those laws. Both laws allow a deduction for ordinary and necessary business expenses, including a deduction for amounts paid or incurred for specified types of punitive damages.
This bill, for taxable years beginning on or after January 1, 2018, would disallow, under both laws, a deduction for amounts paid or incurred for punitive damages, as provided. bill would, in an action in which those damages are sought, require the court to inform the trier of fact, prior to deliberation, that a tax deduction on these damages is allowed as ordinary and necessary business.

This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 23 of the membership of each house of the Legislature.

This bill would take effect immediately as a tax levy.

Vote: TWO_THIRDSMAJORITY   Appropriation: NO   Fiscal Committee: YESNO   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 3294 of the Civil Code is amended to read:

3294.
 (a) In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.
(b) An employer shall not be liable for damages pursuant to subdivision (a), based upon acts of an employee of the employer, unless the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.
(c) As used in this section, the following definitions shall apply:
(1) “Malice” means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.
(2) “Oppression” means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.
(3) “Fraud” means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.
(d) Damages may be recovered pursuant to this section in an action pursuant to Chapter 4 (commencing with Section 377.10) of Title 3 of Part 2 of the Code of Civil Procedure based upon a death which resulted from a homicide for which the defendant has been convicted of a felony, whether or not the decedent died instantly or survived the fatal injury for some period of time. The procedures for joinder and consolidation contained in Section 377.62 of the Code of Civil Procedure shall apply to prevent multiple recoveries of punitive or exemplary damages based upon the same wrongful act.
(e) In an action where punitive or exemplary damages are sought, the court shall inform the trier of fact, prior to deliberation, that a defendant is permitted a tax deduction on these damages as ordinary and necessary business expenses.

(e)

(f) The amendments to this section made by Chapter 1498 of the Statutes of 1987 apply to all actions in which the initial trial has not commenced prior to January 1, 1988.

SECTION 1.Section 17226 is added to the Revenue and Taxation Code, to read:
17226.

For taxable years beginning on or after January 1, 2018, a deduction shall not be allowed for any amount paid or incurred for punitive damages in connection with any judgment in, or settlement of, any action.

SEC. 2.Section 24343.4 is added to the Revenue and Taxation Code, to read:
24343.4.

For taxable years beginning on or after January 1, 2018, a deduction shall not be allowed for any amount paid or incurred for punitive damages in connection with any judgment in, or settlement of, any action.

SEC. 3.

This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.