Schwarzenegger Gets Go-Ahead To Tax Punitive Damages

by Glen Shapiro, LawAndTax-News.com, New York

09 August 2004

It has emerged that California governor, Arnold Schwarzenegger has been successful in his drive to tax punitive damages awarded in the state, although his proposals have been approved in a somewhat watered-down form.

Unveiling his initial budget proposals in May, the California governor revealed plans to divert 75% of all punitive damage awards handed out in California into a specially established Public Benefit Trust Fund, thus raising an estimated $450 million in additional revenue for the state.

However, the California Assembly voted late last month to impose a 'sunset provision' limiting the time frame of cases to which the proposals will apply to two years. This effectively means that only cases begun and completed by June 2006 will be subject to the tax.

Speaking to the Legal Week news service, litigation partner with O'Melveny & Myers, Matthew Close suggested that the approval of the budgetary measures represented an experiment in tort reform more than a revenue-raising initiative, explaining that:

"This is the first small step because the provisions run out in 2006, which means new legislation would need to be passed. Depending on how things go, the system could be modified after the initial experiment."

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