BILL ANALYSIS �
AB 877
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 877 (Bocanegra and Jones-Sawyer)
As Amended May 6, 2014
2/3 vote. Tax levy
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|ASSEMBLY: | |(January 27, |SENATE: |27-9 |(August 11, 2014) |
| | |2014) | | | |
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(vote not relevant)
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|COMMITTEE VOTE: |7-1 |(August 27, 2014) |RECOMMENDATION: |concur |
|(Rev. and Tax.) | | | | |
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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
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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
FN: 0005533