Consumer Federation of California

For Immediate Release: January 5, 2017
Contact: Jeff Barbosa (916) 651-4010

Businesses should not get a tax break for malice, oppression and fraud

Sacramento – Corporations found by a court to be liable for punitive damages for committing the most egregious violations of law will no longer be able to deduct the amount of the damage awards on their taxes as a “business expense” under a bill introduced today by State Senator Bob Wieckowski (D-Fremont). SB 66 would eliminate the tax break for punitive damages and ensure corporations are not rewarded for their blatant violations of law.

“It is outrageous that this tax loophole continues to be allowed for irresponsible businesses that show no regard for the law or their customers they harmed,” said Wieckowski, a member of the Senate Judiciary Committee. “California taxpayers should not be subsidizing the worst offenders. I think most people would be shocked to learn that punitive damages can simply be deducted by these bad actors.  The purpose of punitive damages is to make an example out of the defendant both to punish his reprehensible behavior and to deter future bad behavior by others. Allowing the deduction defeats the purpose of the punitive action and is poor public policy.”

Punitive damages are financial penalties to deter misconduct when it has been proven in court to the highest standard in civil law – clear and convincing evidence. Criminal penalties are not tax deductible and punitive damages should not be either.

“SB 66 is a common-sense bill that restores reason to our tax code by stripping away this indefensible tax loophole so that punitive damages can be a real deterrent to the worst corporate misdeeds,” said Richard Holober, executive director of the California Federation of California.

Unlike regular damages that are awarded by a jury to compensate people for their loss, punitive damages are rare and are awarded only when the defendant’s behavior is especially outrageous.

Examples include an auto manufacturer continuing to sell a vehicle despite knowing for years that a crucial part will fail, a pharmaceutical company failing to warn customers after discovering its product causes serious side effects, or a chemical company knowingly poisoning a town’s drinking water supply. These and other types of disgraceful behavior are not “the cost of doing business” and culpable corporations should not get away with their menacing acts by writing them off at the end of the year.

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