Some people are jerks. The soon-to-be former owner of the Los Angeles Clippers, Donald Sterling, is a jerk. His reprehensible racist comments were widely and appropriately condemned. The NBA banned Sterling from the league for life, fined him $2.5 million, and is forcing him to sell the team.
That's all for the good. But some California politicians don't think Sterling's paying a high enough price. State Assembly members Raul Bocanegra (D) and Reginald Jones-Sawyer Sr. (D) have introduced legislation (AB 877) that would prevent Sterling from deducting the $2.5 million fine as a business expense.
OK, I get it. We don't like Sterling. And we certainly don't want to tolerate racists. But using the tax code to punish Sterling is bad policy for several reasons. Most importantly, we shouldn't enact tax legislation because we don't like what a person believes, no matter how reprehensible. That's not the way we do things in America.
Second, the legislation would bar a deduction for a valid business expense. The league fined Sterling under the terms of its bylaws -- essentially a contractual provision. The owners agree to behave in a certain way, and if they don't, the league can do things like fine them. The NBA is a big business, and Sterling's fine is a business expense. Moreover, retroactive denial of deductions is never good tax policy.
The legislation sets a dangerous precedent, and punishment like that is never good tax policy. According to the Los Angeles Times, Jones-Sawyer said he and Bocanegra introduced the bill because they don't think state tax laws should reward owners of sports franchises for "behaving badly." Wow. If that's the standard under which we promulgate tax policy, we're in big trouble.
Sterling's statements and prior behavior are indefensible. But there are lots of people we dislike and who act in ways that make us shiver. Singling them out for special tax treatment is a bad idea.
This post is an excerpt of article that first appeared in State Tax Notesmagazine.