BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 877|
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THIRD READING
Bill No: AB 877
Author: Bocanegra (D) and Jones-Sawyer (D)
Amended: 5/6/14 in Senate
Vote: 27
PRIOR VOTES NOT RELEVANT
SENATE GOVERNANCE & FINANCE COMMITTEE : 5-1, 6/11/14
AYES: Wolk, Beall, DeSaulnier, Hernandez, Liu
NOES: Walters
NO VOTE RECORDED: Knight
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Income and Corporation taxes: denial of deduction:
owner fine or
penalty
SOURCE : Author
DIGEST : This bill prohibits professional sports franchise
owners from deducting fines and penalties imposed by the
professional sports league that includes that franchise under
the Personal Income Tax Law and Corporation Tax Law.
ANALYSIS : Existing federal and state laws generally allow
taxpayers engaged in a trade or business to deduct all expenses
that are considered ordinary and necessary in conducting that
trade or business, unless specifically excluded by statute.
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AB 877
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2
Under federal and state laws, a deduction is allowed for a fine
or similar penalty paid to an entity, other than the government,
as an ordinary and necessary business expense. Individuals are
allowed to deduct ordinary and necessary expenses paid or
incurred for the production of income and for the management,
conservation, or maintenance of property held for the production
of income. The expenses must not be a nondeductible personal
living expense or exceed specific statutory limits.
This bill prohibits professional sports franchise owners from
deducting fines and penalties imposed by the professional sports
league that includes that franchise under the Personal Income
Tax Law and Corporation Tax Law.
This bill applies to taxable years beginning on or after January
1, 2014.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 6/23/14)
California State Conference of the National Association for the
Advancement of Colored People
ARGUMENTS IN SUPPORT : According to the author: "Under
current law, taxpayers are allowed to deduct ordinary and
necessary business expenses incurred in carrying on a trade or
business. Sports team owners too can benefit from this
deduction and write off fines imposed by their respective
leagues, and, after making comments widely condemned as racist,
Donald Sterling could also make use of this loophole in the law.
"These fines should not be tax-deductible. They are not like
salaries, equipment, or operating expenses, and if we continue
to allow this loophole, we are, effectively, rewarding bad
behavior.
"Tax breaks for these fines undermine the very purpose of the
tax deduction for business expenses - rewarding and
incentivizing good behavior. Fines imposed upon sports team
owners for bad behavior are neither ordinary nor necessary for
the cost of doing business. Therefore, they are inappropriate
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AB 877
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and should be disallowed."
ASSEMBLY FLOOR : 50-24, 1/27/14
AYES: Alejo, Ammiano, Atkins, Bloom, Bocanegra, Bonilla, Bonta,
Bradford, Buchanan, Ian Calderon, Campos, Chau, Chesbro,
Cooley, Dababneh, Daly, Dickinson, Eggman, Fox, Frazier,
Garcia, Gatto, Gomez, Gonzalez, Gordon, Gray, Hall, Roger
Hern�ndez, Holden, Jones-Sawyer, Levine, Lowenthal, Medina,
Mullin, Muratsuchi, Nazarian, Pan, Perea, Quirk-Silva, Rendon,
Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Weber,
Wieckowski, Williams, John A. P�rez
NOES: Achadjian, Allen, Bigelow, Ch�vez, Conway, Dahle,
Donnelly, Fong, Beth Gaines, Grove, Hagman, Harkey, Jones,
Maienschein, Mansoor, Melendez, Morrell, Olsen, Patterson,
Quirk, Wagner, Waldron, Wilk, Yamada
NO VOTE RECORDED: Brown, Gorell, Linder, Logue, Nestande, V.
Manuel P�rez
AB:nl 6/25/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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