Assembly passes ‘punitive’ tax bill

June 27, 2013

By Katy Grimes


SACRAMENTO — As the Legislature is about to recess for the summer, tax increase bills are the immediate focus. When the Legislature reconvenes August 5, it may not have a Democratic Supermajority. Several legislators won local elections and will be taking up their new positions, reducing the Democrats’ numbers below the two-thirds threshold.

Tax bills need a two-thirds vote of the Legislature to pass — and they are getting it.

AB 458, by Assemblyman Bob Wieckowski, D-Fremont, claims to prevent a tax loophole that allows companies to take a deduction when a court holds them liable for punitive damages.

“There has been much discussion recently about whether California corporations pay their fair share of taxes,” Wieckowski said in testimony today about AB 458, which I attended. “This bill does not attempt to address that issue, but it does take on one business tax deduction that I believe everyone can agree is logically indefensible. Punitive damages should not be tax deductible as ordinary and necessary business expenses.”

But Assemblywoman Shannon Grove, R-Bakersfield, a business owner, challenged the state practice of penalties to punish employers. “The law says employers have to list a specific address for the employer’s bank on paychecks, or the state imposes a $50 per-employee penalty on the employer,” she said. “We punitively punish employers in this state to the point they are all leaving.”

Grove identified  numerous other ridiculous requirements on employers, all passed by the Legislature. “I urge a ‘no’ vote and ask you to stand up for business owners.”

Unique and strict California wage and hour laws

What Grove was talking about was the state-mandated itemized listing of 11 different items an employee must receive on a pay stub:

* Inclusive dates of the pay period;

*Name of the employee and last four digits of the Social Security number;

*Name and address of the employer;

*All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.

Failure to include all required information with each paycheck can result in penalties of $100 per employee, per violation, up to a maximum of $4,000 per employee, according to the State of California Labor Commissioner.

California law also requires employers to keep a copy of all payroll records, showing the daily hours worked and the wages paid to its employees for at least three years, or be assessed a $250 penalty as an initial citation, and a $1,000 penalty for each subsequent violation.

“It’s a stretch to say a tax on business owners is not putative,” said Assemblyman Brian Jones, R-Santee. “In the United States, California ranks as the least business-friendly state in the nation. And California ranks as one of the least legal-friendly in the nation.”

Jones called the bill “nonsense.” That rankled the lawyers in the Assembly.

“Penalties are not putative damages,” said Assemblyman Roger Dickinson, D-Sacramento, a lawyer. “Putative damages are imposed by a judge and jury,” he added, appearing to split hairs. “Why would we give a tax break to someone who oppresses or does something constituting fraud?”

“It does not balance our budget,” Wieckowski said. “It will raise only $400,000 in additional revenue a year.” He said businesses assessed punitive damages have committed “some reprehensible action.”

AB 458 passed the Assembly with the two thirds necessary, 54-24, on a party-line vote.

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