BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Michael J. Machado, Chair
SB 1827 - Migden
Amended: April 17, 2006
Hearing: April 26, 2006 Fiscal: Yes
SUBJECT: Requires registered domestic partners to file
personal income tax returns as either (1) married
filing joint or (2) married filing separate.
EXISTING LAW
Federal Law
There are five different filing status choices for federal
tax purposes. The appropriate filing status to select is
based on the following rules:
1. An individual may choose the filing status "married
filing jointly" if any of the following apply:
An individual is married at the end of
the taxable year, even if that individual did not
live with their spouse at the end of the year,
An individual whose spouse died during
the taxable year, and the individual did not
remarry during that same taxable year,
An individual was married at the end of
the taxable year and the spouse died in the next
taxable year but before the tax return is filed.
1. An individual may choose the filing status "married
filing separately" if the individual is married and
chooses to file a separate tax return from the spouse.
Each spouse reports on separate returns half of the
couple's community income and the total amount of the
spouse's separate income. Generally, an individual
choosing this filing status will pay more tax.
2. An individual may choose the filing status "head of
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household" if the individual is unmarried at the end
of the tax year (or treated as unmarried) and provides
a home for certain individuals for more than half of
the tax year.
3. An individual shall choose the filing status
"single" if the individual was any of the following:
Never married,
Legally separated according to state law,
under a decree of divorce or separate
maintenance, or
Widowed before the beginning of the tax
year and did not marry during the tax year.
1. An individual may choose the filing status
"qualifying widow(er) with dependent child" if all of
the following apply:
The spouse died in either of the prior
two taxable years,
The widow(er) has a child or stepchild
whom is claimed as a dependent,
The child lived with the widow(er) for
all of the taxable year, except for temporary
absences for special circumstances,
The widow(er) paid over half the cost of
keeping up the home, and
The widow(er) could have filed a joint
return with the spouse in the year of death.
For federal tax purposes, registered domestic partners only
have the filing status choices of "single" or "head of
household."
State Law
An individual is required to use the same filing status as
that used on the federal income tax return for the same
taxable year; therefore, registered domestic partners only
have the filing status choices of "single" or "head of
household" for state purposes.
Current law specifically requires domestic partners to use
the same filing status on their state return that they used
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on their federal income tax return. Current law, as of
January 1, 2005, does apply the same community property
rules to domestic partners that are applied to married
persons in the state. However, current state law also
provides that earned income will not be treated as
community property for state income tax purposes.
THIS BILL
Requires registered domestic partners to file a personal
income tax return jointly or separately by applying the
standards applicable to married couples under federal
income tax law.
Provides a rule to determine the application of limits
based on adjusted gross income for domestic partners by
combining the amounts reflected as adjusted gross income on
the federal income tax return of each domestic partner.
Revises existing provisions of law to treat registered
domestic partners as married persons for purposes of filing
status as follows:
Domestic partners may file separate returns for any
taxable year where a joint return has already been
filed after the original filing period to file a
return has expired.
No joint return can be made if the domestic
partners have different taxable years, subject to
exception.
Extend to registered domestic partners the same
rules with respect to filing status that are
applicable in the event of the death of one or both
spouses.
FISCAL EFFECT:
According to the FTB, this bill would have the following
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fiscal impact:
2007-08: -$8 million
2008-09: -$9 million
2009-10: -$10 million
COMMENTS:
A. Purpose of the bill
This bill is sponsored by the author. According to
supporters of the bill there have been unfair financial
burdens on domestic partners and their families, especially
those they bear under the state's tax laws. After the
passage of the comprehensive domestic partnership law
enacted in 2003, registered domestic partners have assumed
mutual financial responsibility of each other on the same
terms as spouses. Yet, the state's laws deny them equal
treatment with respect to state income taxes denying the
convenience and financial benefits that sometimes come with
filing a joint return. This bill, according to the
supporters, will make a significant difference in the lives
of thousands of same-sex couples in the state and will be a
statement of respectful inclusion for all.
B. Author's Amendments
The author will take amendments in committee to clarify
conflicting sections with the Family Code that specifically
provide that domestic partners use the same filing status
as used on their federal return.
C. Difference with IRS
The FTB analysis points out that it uses automated systems
to compare taxpayer return information to files received
from other state and federal agencies, including the
Internal Revenue Service (IRS). These automated systems
search through IRS records by Social Security Number and
name and compares information on the taxpayer's federal
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income tax return to the information on the California
income tax return. Current law generally requires the
filing status of the taxpayer for the state tax return to
be the same filing status as on the federal return; the
information systems have the ability to verify joint
returns based on the primary taxpayer's information.
Domestic partners are required to file separate federal
income tax returns and this bill would allow domestic
partners to file a joint state income tax return; the
department anticipates a significant delay in the ability
of the automated systems to compare taxpayer information.
The systems would be required to process the federal
information more than once as the systems search for the
primary taxpayer and the secondary taxpayer individually
because each taxpayer would have a separate return at the
federal level. The systems would need additional
programming and testing prior to being operational.
D. Not everyone would save money
In the case where a "Head of Household" filer and a
"single" filer combine tax returns to file jointly there
can in fact be an increase in tax. This is due to the fact
that we provide incentives for head of households meant to
mitigate the tax burden associated with a single taxpayer
with multiple dependents. This bill would negate that
incentive. It is important to note that there is no
marriage penalty in California for joint returns.
Of all tax returns associated with this bill, 59% would see
a reduction in taxes; 29% would experience no change in
taxes; and 12% would experience an increase in taxes.
E. Legislative History
AB 205 (Goldberg, Stats. 2003, Ch. 421) as introduced on
January 28, 2003, would have allowed domestic partners to
file personal income tax returns as either: (1) married
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filing joint, or (2) married filing separate. In
addition, the bill as chaptered made changes to various
California laws regarding domestic partners, including the
creation of community property rights. It also added
language that required the same filing status on a state
income tax return as used on the federal income tax return
and provided that earned income is not community property
for state income tax purposes. The provisions of joint
filing were removed from the bill.
AB 25 (Migden, Stats. 2001, Ch. 893) allowed several
existing taxpayer benefits for medical expenses and health
insurance benefits to include a taxpayer's domestic partner
and a domestic partner's dependents.
F. Other States
For tax periods ending on or after May 16, 2004,
Massachusetts recognizes the right of same-sex couples to
be married. As a consequence, same-sex spouses that marry
shall file Massachusetts income tax returns as married
filing joint or married filing separate. Massachusetts is
not a community property state.
Support and Opposition
Support:Lambda Legal
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Consultant: Gayle Miller
04/24/06 16:02
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