Tax Breaks for Private Men’s Clubs Ended by State Board

Increasing the pressure on private clubs to open their doors to women and minorities, the state Franchise Tax Board gave its final approval Tuesday to a regulation abolishing a popular tax break for members of clubs that practice discrimination.

By a vote of 2 to 0, the tax board adopted a rule prohibiting members of clubs that discriminate on the basis of race, sex or religion from claiming membership fees and other club expenses as business deductions on their state income taxes.

“The taxpayers of California shouldn’t have to foot the bill for the actions of these discriminatory private clubs,” said board member Conway Collis, the sponsor of the regulation. “In a cruel irony, the very women, minorities and religious groups who are discriminated against are forced to pay as taxpayers for the support of these clubs.”

Numerous Clubs

The rule would apply to the members of scores of clubs throughout the state, Collis said, including such prominent institutions as the Virginia Club in Long Beach, the Sutter Club in Sacramento and the Pacific Union and Bohemian Clubs in San Francisco. The bylaws of all these clubs prohibit women from joining, he said.

The regulation, which received the initial approval of the tax board in April, is one of a wave of governmental actions in recent months that have challenged the tradition of white, male dominance at powerful, private clubs. These clubs often provide a relaxed setting where business and political leaders can meet and make important decisions.

Just last month, the city of Los Angeles banned discrimination at most of the city’s large private clubs and the U.S. Supreme Court ruled that Rotary International could not oust chapters that admit women members.

“The issues before us are fundamental questions of equity and social justice,” said Controller Gray Davis, chairman of the tax board, prior to the vote. “The state has said it will no longer underwrite discrimination in South Africa. How can we do less in California?”

The regulation goes next to the state Office of Administrative Law for a review to make sure it falls under the tax board’s authority, among other legal questions. If it passes the agency’s review, it will take effect Jan. 1, 1988.

Collis said in an interview that enforcement of the regulation would rely primarily on the honesty of club members. Income tax forms would contain a declaration, under penalty of perjury, that no deductions are claimed for business expenses at clubs that practice discrimination. Such expenses would include initiation fees, membership dues and meals at which business matters are discussed.

“It is self-regulation in that regard,” Collis said, “but we make the assumption that a business person is not going to want to commit perjury simply in order to take a business tax deduction from a club that discriminates.”

Collis said that the state would rely on regular auditing procedures to detect any violations.

In order to verify the claims of tax-paying club members during audits, the tax board will compile a list of clubs known to practice discrimination. The list will be based on the membership requirements of the clubs themselves and on successful, anti-discrimination lawsuits brought against the clubs by government agencies or victims of bias, he said.

While no one testified against the regulation at the tax board hearing, opponents of the rule argue privately that it does not fall under the purview of the tax board and that its enactment requires action by the Legislature.

A bill that would eliminate the tax deduction for members of discriminatory clubs is pending in the Legislature, along with a measure that would revoke the liquor licenses of clubs that practice discrimination.

Legal Authority Cited

But both Collis and Davis said the board has the legal authority to adopt the rule. They cited an opinion released Monday by the office of Atty. Gen. John Van de Kamp that concluded: “While the issue is not free from doubt, a reasonable legal argument can be made on behalf of any such regulations promulgated by the board.”

Gov. George Deukmejian, who appoints the director of the Office of Administrative Law and decides any cases appealed from the agency, has been decidedly cool to the anti-discrimination regulation. In April, Deukmejian said government should not intrude on the right of clubs to select their members and questioned the Franchise Tax Board’s legal authority to adopt the rule.

During the tax board hearing, Collis and Davis urged Deukmejian’s representative on the three-member panel, state Finance Department Director Jesse Huff, to join them in voting for the measure. But Huff left the meeting before the vote, saying “a situation” had developed over the governor’s proposed budget that required his attention.

Collis expressed concern afterwards that Deukmejian’s stance and Huff’s departure could mean the Administration will seek rejection of the regulation when it reaches the Office of Administrative Law.

But Linda Stockdale Brewer, the director of the agency, said in an interview that the rule will be judged on the same criteria that all state regulations must meet. “I think any cause for concern is unfounded and unwarranted,” she said. “The governor has never ever done anything that would jeopardize the independence of this agency.”