BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                AB 877
                                                                Page  1

        CONCURRENCE IN SENATE AMENDMENTS
        AB 877 (Bocanegra and Jones-Sawyer)
        As Amended  May 6, 2014
        2/3 vote.  Tax levy
         
         ---------------------------------------------------------------------- 
        |ASSEMBLY: |     |(January 27,    |SENATE: |27-9 |(August 11, 2014)    |
        |          |     |2014)           |        |     |                     |
         ---------------------------------------------------------------------- 
             (vote not relevant)


         ------------------------------------------------------------------------ 
        |COMMITTEE VOTE:  |7-1  |(August 27, 2014)   |RECOMMENDATION: |concur    |
        |(Rev. and Tax.)  |     |                    |                |          |
         ------------------------------------------------------------------------ 

        Original Committee Reference:   E. & R.  

         SUMMARY  :  Disallows a deduction for any fine or penalty paid or  
        incurred by an owner of a professional sports franchise, where that  
        fine or penalty is assessed or imposed by the professional sports  
        league that includes that franchise.  

         The Senate amendments  delete the Assembly version of this bill, and  
        instead:

        1)Provide that, for taxable years beginning on or after January 1,  
          2014, a deduction shall not be allowed for the amount of any fine  
          or penalty paid or incurred by an owner of a professional sports  
          franchise, where that fine or penalty is assessed or imposed by  
          the professional sports league that includes that franchise.

        2)Disallow a deduction under both the Personal Income Tax Law and  
          the Corporation Tax Law.

        3)Provide that this bill shall go into immediate effect as a tax  
          levy.    

         EXISTING LAW  :

        1)Allows various deductions in computing income subject to  
          taxation.  

        2)Allows a deduction for ordinary and necessary business expenses,  








                                                                AB 877
                                                                Page  2

          including a deduction for amounts paid or incurred for specified  
          types of fines or penalties.  

         AS PASSED BY THE ASSEMBLY  , this bill revised the definition of a  
        "voter verified paper audit trail."

         FISCAL EFFECT  :  According to the Senate Appropriations Committee,  
        pursuant to Senate Rule 28.8, negligible state costs.

         COMMENTS  :  The author has provided the following statement in  
        support of this bill:

             From Eddie DeBartolo, who was fined $1 million by the  
             NFL [National Football League], to Donald Sterling,  
             who was fined $2.5 million by the NBA [National  
             Basketball Association], disciplinary fines and  
             penalties for sports team owners should not be tax  
             deductible.  However, sports team owners can currently  
             benefit from a loophole, which gives those sports team  
             owners the ability to write off disciplinary fines as  
             business expenses on their state income tax returns.   
             Tax deductions for business expenses must be both  
             'ordinary and necessary,' and a disciplinary fine or  
             penalty imposed by a professional sports league on a  
             team owner of that league is neither ordinary nor  
             necessary.  AB 877 addresses this problem by closing  
             this loophole, and it does so in a way that brings  
             greater equity to the tax code.   

        National Basketball Association (NBA) fines.  One of the most  
        prominent team owners, Mark Cuban, has been fined by the NBA at  
        least 20 different times for a total of $1.84 million.  A large  
        number of those fines were imposed for inappropriate interactions  
        with referees or for criticizing their ability to make the right  
        calls.  One of the largest fines came in 2002 after the Mavericks  
        lost to the San Antonio Spurs and Mark Cuban was quoted as saying  
        "Ed Rush [Former NBA Referee] might have been a great ref, but I  
        wouldn't hire him to manage a dairy queen."  The comment cost Mark  
        Cuban $500,000.  In 2011, Micky Arison, owner of the Miami Heat,  
        was fined $500,000 after making several lockout-related posts on  
        his twitter account.  Though most of the fines have been imposed  
        because of comments made by team owners, a few have been imposed  
        for actions not becoming an NBA owner.  One such example came in  
        2001 when Mark Cuban was fined $100,000 for sitting on the floor  
        during a game.








                                                                AB 877
                                                                Page  3


        Punishing everyone because of one person.  As explained by the  
        author, this bill is, in part, a response to the recent incendiary  
        comments made by Donald Sterling, former owner of the Los Angeles  
        Clippers.  Donald Sterling was fined a record $2.5 million and was  
        banned for life from the NBA for his racist comments.  Clearly,  
        Sterling's comment is inexcusable but is it necessary to change the  
        law for every sports team owner in California?  

        Distinction between government and private entities.  Fines and  
        penalties, with respect to sports team owners, are generally given  
        for violations of rules, guidelines, or policies.  Under federal  
        and state law, a deduction is allowed for a fine or similar penalty  
        paid to an entity, other than a government, as an ordinary and  
        necessary business expense.  It may be argued that the  
        deductibility of a fine or penalty should be treated the same,  
        regardless of whether the penalty is imposed by a private or  
        government entity.  However, as explained above, at least some of  
        the fines incurred by professional sports team owners are imposed  
        because of comments deemed inappropriate by a professional sports  
        league.  The First Amendment prevents a government entity from  
        imposing fines based on speech.  At least in this respect, there  
        appears to be a distinction between many of the fines imposed by a  
        professional sports league and government entities.  

        Out of conformity.  As noted above, California conforms to federal  
        law with respect to the deductibility of fines and penalties.  In  
        general, state conformity with federal law promotes greater  
        simplicity and eases administration of complex tax laws.  By  
        eliminating the deductibility of a fine or penalty, this bill would  
        bring California out of conformity with federal law.


         Analysis Prepared by  :    Carlos Anguiano / REV. & TAX. / (916)  
        319-2098                                          


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