BILL NUMBER: SB 1827 CHAPTERED BILL TEXT CHAPTER 802 FILED WITH SECRETARY OF STATE SEPTEMBER 29, 2006 APPROVED BY GOVERNOR SEPTEMBER 29, 2006 PASSED THE SENATE AUGUST 29, 2006 PASSED THE ASSEMBLY AUGUST 23, 2006 AMENDED IN ASSEMBLY JUNE 14, 2006 AMENDED IN SENATE MAY 2, 2006 AMENDED IN SENATE APRIL 17, 2006 INTRODUCED BY Senator Migden FEBRUARY 24, 2006 An act to amend Section 297.5 of the Family Code, and to amend Sections 17024.5 and 18521 of the Revenue and Taxation Code, relating to taxation. LEGISLATIVE COUNSEL'S DIGEST SB 1827, Migden Taxation: domestic partners. The Personal Income Tax Law imposes tax on taxable income and provides, among other things, that specified definitions govern the construction of that law. Existing law allows married couples to file joint or separate state tax returns, as specified. This bill would allow registered domestic partners to file joint or separate state tax returns, as specified. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. The Legislature finds and declares as follows: (a) The California Domestic Partner Rights and Responsibilities Act of 2003 created inequality between spouses and registered domestic partners by excluding joint income tax filing from the rights, protections, and responsibilities afforded to registered domestic partners. The California Domestic Partner Rights and Responsibilities Act of 2003 created further inequality by providing that the earned income of registered domestic partners shall not be treated as community property for state income tax purposes, as is done for the earned income of spouses, notwithstanding that domestic partners assume full financial responsibility for each other as do spouses. These inequalities have remained despite the technical amendments to the domestic partnership laws enacted in 2004 by Assembly Bill 2580, and other intervening changes in the laws governing the state's registered domestic partnerships. (b) It is the policy of the state to provide all caring and committed couples, regardless of their sex or sexual orientation, the opportunity to obtain essential rights and to assume corresponding responsibilities, and to further the state's compelling interests in promoting stable and lasting family relationships in this state by affording comprehensive protections under state law. (c) The differential treatment of registered domestic partners with respect to state income taxes discriminates on the bases of sex and sexual orientation, imposes unfair tax burdens on many registered domestic partners, and is inconsistent with the policy underlying the domestic partnership laws of reducing discrimination on the bases of sex and sexual orientation in a manner consistent with the requirements of the California Constitution. (d) It is the intent of the Legislature in enacting this bill that the inconsistency between registered domestic partners and spouses with respect to state income taxation be removed, registered domestic partners be permitted to file their income tax returns jointly or separately on terms similar to those governing spouses, and the earned income of registered domestic partners be recognized appropriately as community property. As a result of this bill, registered domestic partners who file separate income tax returns each shall report one-half of the combined income earned by both domestic partners, as spouses do, rather than their respective individual incomes for the taxable year. SEC. 2. Section 297.5 of the Family Code is amended to read: 297.5. (a) Registered domestic partners shall have the same rights, protections, and benefits, and shall be subject to the same responsibilities, obligations, and duties under law, whether they derive from statutes, administrative regulations, court rules, government policies, common law, or any other provisions or sources of law, as are granted to and imposed upon spouses. (b) Former registered domestic partners shall have the same rights, protections, and benefits, and shall be subject to the same responsibilities, obligations, and duties under law, whether they derive from statutes, administrative regulations, court rules, government policies, common law, or any other provisions or sources of law, as are granted to and imposed upon former spouses. (c) A surviving registered domestic partner, following the death of the other partner, shall have the same rights, protections, and benefits, and shall be subject to the same responsibilities, obligations, and duties under law, whether they derive from statutes, administrative regulations, court rules, government policies, common law, or any other provisions or sources of law, as are granted to and imposed upon a widow or a widower. (d) The rights and obligations of registered domestic partners with respect to a child of either of them shall be the same as those of spouses. The rights and obligations of former or surviving registered domestic partners with respect to a child of either of them shall be the same as those of former or surviving spouses. (e) To the extent that provisions of California law adopt, refer to, or rely upon, provisions of federal law in a way that otherwise would cause registered domestic partners to be treated differently than spouses, registered domestic partners shall be treated by California law as if federal law recognized a domestic partnership in the same manner as California law. (f) Registered domestic partners shall have the same rights regarding nondiscrimination as those provided to spouses. (g) No public agency in this state may discriminate against any person or couple on the ground that the person is a registered domestic partner rather than a spouse or that the couple are registered domestic partners rather than spouses, except that nothing in this section applies to modify eligibility for long-term care plans pursuant to Chapter 15 (commencing with Section 21660) of Part 3 of Division 5 of Title 2 of the Government Code. (h) This act does not preclude any state or local agency from exercising its regulatory authority to implement statutes providing rights to, or imposing responsibilities upon, domestic partners. (i) This section does not amend or modify any provision of the California Constitution or any provision of any statute that was adopted by initiative. (j) Where necessary to implement the rights of registered domestic partners under this act, gender-specific terms referring to spouses shall be construed to include domestic partners. (k) (1) For purposes of the statutes, administrative regulations, court rules, government policies, common law, and any other provision or source of law governing the rights, protections, and benefits, and the responsibilities, obligations, and duties of registered domestic partners in this state, as effectuated by this section, with respect to community property, mutual responsibility for debts to third parties, the right in particular circumstances of either partner to seek financial support from the other following the dissolution of the partnership, and other rights and duties as between the partners concerning ownership of property, any reference to the date of a marriage shall be deemed to refer to the date of registration of a domestic partnership with the state. (2) Notwithstanding paragraph (1), for domestic partnerships registered with the state before January 1, 2005, an agreement between the domestic partners that the partners intend to be governed by the requirements set forth in Sections 1600 to 1620, inclusive, and which complies with those sections, except for the agreement's effective date, shall be enforceable as provided by Sections 1600 to 1620, inclusive, if that agreement was fully executed and in force as of June 30, 2005. SEC. 3. Section 17024.5 of the Revenue and Taxation Code is amended to read: 17024.5. (a) (1) Unless otherwise specifically provided, the terms "Internal Revenue Code," "Internal Revenue Code of 1954," or "Internal Revenue Code of 1986," for purposes of this part, mean Title 26 of the United States Code, including all amendments thereto as enacted on the specified date for the applicable taxable year as follows: Specified Date of Internal Revenue Code Taxable Year Sections (A) For taxable years beginning on or after January 1, 1983, and on or before December 31, 1983....................... January 15, 1983 (B) For taxable years beginning on or after January 1, 1984, and on or before December 31, 1984....................... January 1, 1984 (C) For taxable years beginning on or after January 1, 1985, and on or before December 31, 1985....................... January 1, 1985 (D) For taxable years beginning on or after January 1, 1986, and on or before December 31, 1986....................... January 1, 1986 (E) For taxable years beginning on or after January 1, 1987, and on or before December 31, 1988....................... January 1, 1987 (F) For taxable years beginning on or after January 1, 1989, and on or before December 31, 1989....................... January 1, 1989 (G) For taxable years beginning on or after January 1, 1990, and on or before December 31, 1990....................... January 1, 1990 (H) For taxable years beginning on or after January 1, 1991, and on or before December 31, 1991....................... January 1, 1991 (I) For taxable years beginning on or after January 1, 1992, and on or before December 31, 1992....................... January 1, 1992 (J) For taxable years beginning on or after January 1, 1993, and on or before December 31, 1996....................... January 1, 1993 (K) For taxable years beginning on or after January 1, 1997, and on or before December 31, 1997....................... January 1, 1997 (L) For taxable years beginning on or after January 1, 1998, and on or before December 31, 2001....................... January 1, 1998 (M) For taxable years beginning on or after January 1, 2002, and on or before December 31, 2004....................... January 1, 2001 (N) For taxable years beginning on or after January 1, 2005................ January 1, 2005 (2) (A) Unless otherwise specifically provided, for federal laws enacted on or after January 1, 1987, and on or before the specified date for the taxable year, uncodified provisions that relate to provisions of the Internal Revenue Code that are incorporated for purposes of this part shall be applicable to the same taxable years as the incorporated provisions. (B) In the case where Section 901 of the Economic Growth and Tax Relief Act of 2001 (Public Law 107-16) applies to any provision of the Internal Revenue Code that is incorporated for purposes of this part, Section 901 of the Economic Growth and Tax Relief Act of 2001 shall apply for purposes of this part in the same manner and to the same taxable years as it applies for federal income tax purposes. (3) Subtitle G (Tax Technical Corrections) and Part I of Subtitle H (Repeal of Expired or Obsolete Provisions) of the Revenue Reconciliation Act of 1990 (Public Law 101-508) modified numerous provisions of the Internal Revenue Code and provisions of prior federal acts, some of which are incorporated by reference into this part. Unless otherwise provided, the provisions described in the preceding sentence, to the extent that they modify provisions that are incorporated into this part, are declaratory of existing law and shall be applied in the same manner and for the same periods as specified in the Revenue Reconciliation Act of 1990. (b) Unless otherwise specifically provided, when applying any provision of the Internal Revenue Code for purposes of this part, a reference to any of the following is not applicable for purposes of this part: (1) Except as provided in Chapter 4.5 (commencing with Section 23800) of Part 11 of Division 2, an electing small business corporation, as defined in Section 1361(b) of the Internal Revenue Code. (2) Domestic international sales corporations (DISC), as defined in Section 992(a) of the Internal Revenue Code. (3) A personal holding company, as defined in Section 542 of the Internal Revenue Code. (4) A foreign personal holding company, as defined in Section 552 of the Internal Revenue Code. (5) A foreign investment company, as defined in Section 1246(b) of the Internal Revenue Code. (6) A foreign trust, as defined in Section 679 of the Internal Revenue Code. (7) Foreign income taxes and foreign income tax credits. (8) Section 911 of the Internal Revenue Code, relating to United States citizens living abroad. (9) A foreign corporation, except that Section 367 of the Internal Revenue Code shall be applicable. (10) Federal tax credits and carryovers of federal tax credits. (11) Nonresident aliens. (12) Deduction for personal exemptions, as provided in Section 151 of the Internal Revenue Code. (13) The tax on generation-skipping transfers imposed by Section 2601 of the Internal Revenue Code. (14) The tax, relating to estates, imposed by Section 2001 or 2101 of the Internal Revenue Code. (c) (1) The provisions contained in Sections 41 to 44, inclusive, and Section 172 of the Tax Reform Act of 1984 (Public Law 98-369), relating to treatment of debt instruments, is not applicable for taxable years beginning before January 1, 1987. (2) The provisions contained in Public Law 99-121, relating to the treatment of debt instruments, is not applicable for taxable years beginning before January 1, 1987. (3) For each taxable year beginning on or after January 1, 1987, the provisions referred to by paragraphs (1) and (2) shall be applicable for purposes of this part in the same manner and with respect to the same obligations as the federal provisions, except as otherwise provided in this part. (d) When applying the Internal Revenue Code for purposes of this part, regulations promulgated in final form or issued as temporary regulations by "the secretary" shall be applicable as regulations under this part to the extent that they do not conflict with this part or with regulations issued by the Franchise Tax Board. (e) Whenever this part allows a taxpayer to make an election, the following rules shall apply: (1) A proper election filed with the Internal Revenue Service in accordance with the Internal Revenue Code or regulations issued by "the secretary" shall be deemed to be a proper election for purposes of this part, unless otherwise provided in this part or in regulations issued by the Franchise Tax Board. (2) A copy of that election shall be furnished to the Franchise Tax Board upon request. (3) (A) Except as provided in subparagraph (B), in order to obtain treatment other than that elected for federal purposes, a separate election shall be filed at the time and in the manner required by the Franchise Tax Board. (B) (i) If a taxpayer makes a proper election for federal income tax purposes prior to the time that taxpayer becomes subject to the tax imposed under this part or Part 11 (commencing with Section 23001), that taxpayer is deemed to have made the same election for purposes of the tax imposed by this part, Part 10.2 (commencing with Section 18401), and Part 11 (commencing with Section 23001), as applicable, and that taxpayer may not make a separate election for California tax purposes unless that separate election is expressly authorized by this part, Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001), or by regulations issued by the Franchise Tax Board. (ii) If a taxpayer has not made a proper election for federal income tax purposes prior to the time that taxpayer becomes subject to tax under this part or Part 11 (commencing with Section 23001), that taxpayer may not make a separate California election for purposes of this part, Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001), unless that separate election is expressly authorized by this part, Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001), or by regulations issued by the Franchise Tax Board. (iii) This subparagraph applies only to the extent that the provisions of the Internal Revenue Code or the regulation issued by "the secretary" authorizing an election for federal income tax purposes apply for purposes of this part, Part 10.2 (commencing with Section 18401) or Part 11 (commencing with Section 23001). (f) Whenever this part allows or requires a taxpayer to file an application or seek consent, the rules set forth in subdivision (e) shall be applicable with respect to that application or consent. (g) When applying the Internal Revenue Code for purposes of determining the statute of limitations under this part, any reference to a period of three years shall be modified to read four years for purposes of this part. (h) When applying, for purposes of this part, any section of the Internal Revenue Code or any applicable regulation thereunder, all of the following shall apply: (1) References to "adjusted gross income" shall mean the amount computed in accordance with Section 17072, except as provided in paragraph (2). (2) (A) Except as provided in subparagraph (B), references to "adjusted gross income" for purposes of computing limitations based upon adjusted gross income, shall mean the amount required to be shown as adjusted gross income on the federal tax return for the same taxable year. (B) In the case of registered domestic partners filing a joint return under Section 18521, adjusted gross income, for the purposes of computing limitations based upon adjusted gross income, shall mean the total of the amount required to be shown as adjusted gross income on the federal tax return for the same taxable year of each registered domestic partner. (3) Any reference to "subtitle" or "chapter" shall mean this part. (4) The provisions of Section 7806 of the Internal Revenue Code, relating to construction of title, shall apply. (5) Any provision of the Internal Revenue Code that becomes operative on or after the specified date for that taxable year shall become operative on the same date for purposes of this part. (6) Any provision of the Internal Revenue Code that becomes inoperative on or after the specified date for that taxable year shall become inoperative on the same date for purposes of this part. (7) Due account shall be made for differences in federal and state terminology, effective dates, substitution of "Franchise Tax Board" for "secretary" when appropriate, and other obvious differences. (i) Any reference to a specific provision of the Internal Revenue Code shall include modifications of that provision, if any, in this part. SEC. 4. Section 18521 of the Revenue and Taxation Code is amended to read: 18521. (a) (1) Except as otherwise provided in this section, an individual shall use the same filing status that he or she used on his or her federal income tax return filed for the same taxable year. (2) If the Franchise Tax Board determines that the filing status used on the taxpayer's federal income tax return was incorrect, the Franchise Tax Board may, under Section 19033 (relating to deficiency assessments), revise the return to reflect a correct filing status. (3) If either spouse or domestic partner was a nonresident for any portion of the taxable year, and the couple files a joint federal income tax return, the spouses or domestic partners shall be required to file a joint nonresident return. (b) In the case of an individual who is not required to file a federal income tax return for the taxable year, that individual may use any filing status on the return required under this part that he or she would be eligible to use on a federal income tax return for the same taxable year if a federal income tax return was required. (c) Notwithstanding subdivision (a), spouses and registered domestic partners, as described in Section 297 of the Family Code, who are registered as domestic partners as of the close of the taxable year, may file separate returns under this part if either spouse or registered domestic partner was either of the following during the taxable year: (1) An active member of the Armed Forces or any auxiliary branch thereof. (2) A nonresident for the entire taxable year who had no income from a California source. (d) Notwithstanding subdivision (a), registered domestic partners, as described in Section 297 of the Family Code, who are registered as domestic partners as of the close of the taxable year and who are prohibited under federal law from filing a joint federal income tax return, shall either file a joint state income tax return or separate state income tax returns by applying the standards applicable to spouses who file separately pursuant to Section 6013 of the Internal Revenue Code. A separate return filed by a domestic partner of a registered domestic partnership shall be subject to the same conditions and limitations applicable to the separate return of a spouse. (e) Except for taxpayers described in subdivision (c), for any taxable year with respect to which a joint return has been filed, a separate return shall not be made by either spouse or domestic partner after the period for either to file a separate return has expired. (f) No joint return shall be made if the spouses or the domestic partners have different taxable years; except that if their taxable years begin on the same day and end on different days because of the death of either or both, then a joint return may be made with respect to the taxable year of each. The above exception shall not apply if the surviving spouse remarries or the surviving domestic partner enters into a new domestic partnership before the close of his or her taxable year, or if the taxable year of either spouse or domestic partner is a fractional part of a year under Section 443(a) of the Internal Revenue Code. (g) In the case of the death of one spouse or domestic partner or both spouses or both domestic partners the joint return with respect to the decedent may be made only by the decedent's executor or administrator; except that, in the case of the death of one spouse or domestic partner, the joint return may be made by the surviving spouse or surviving domestic partner with respect to both that spouse or domestic partner and the decedent if no return for the taxable year has been made by the decedent, no executor or administrator has been appointed, and no executor or administrator is appointed before the last day prescribed by law for filing the return of the surviving spouse or surviving domestic partner. If an executor or administrator of the decedent is appointed after the making of the joint return by the surviving spouse or surviving domestic partner, the executor or administrator may disaffirm the joint return by making, within one year after the last day prescribed by law for filing the return of the surviving spouse or surviving domestic partner, a separate return for the taxable year of the decedent with respect to which the joint return was made, in which case the return made by the survivor shall constitute his or her separate return.