BILL ANALYSIS Ó AB 362 Page 1 Date of Hearing: May 24, 2013 ASSEMBLY COMMITTEE ON APPROPRIATIONS Mike Gatto, Chair AB 362 (Ting) - As Amended: May 21, 2013 Policy Committee: Revenue and Taxation Vote: 7-2 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill excludes from state gross income, reimbursement received from an employer for federal income taxes paid by the employee because federal income tax law does not consider the employee's same-sex spouse or domestic partner to be the employee's spouse, thereby making any health benefit payments by the employer taxable income for the employee. This bill also excludes from gross income any employer's reimbursement of federal income taxes paid with respect to those amounts. The bill provides it will become inoperative on January 1, 2019. FISCAL EFFECT Franchise Tax Board estimates this bill will cost approximately $75,000 annually. COMMENTS 1)Purpose . The author states the issues addressed by AB 362 is a question of fairness for same-sex couples. According to the author, the federal policy to tax the health care benefits of same-sex couples and same-sex headed families is discriminatory, and the last thing the state of California should do is make it harder to remedy the injustice by taxing the reimbursement of these costs. The author argues this legislation will strengthen California's history of non-discrimination. 2)Support . Proponents, including Equality California, state that because the federal Defense of Marriage Act (DOMA) prohibits recognition of same-sex partnerships, the government AB 362 Page 2 treats health insurance benefits provided through a same-sex spouse's or domestic partner's employer as taxable income. The federal government does not tax these benefits as income for different-sex couples. Supporters note when a California employer provides reimbursement to its employees for this federal tax, often referred to as a gross-up, California taxes this reimbursement as additional income. 3)Background . The United States Supreme Court recently heard oral arguments in United States v. Windsor and Hollingsworth v. Perry. United States v. Windsor concerns the constitutionality of the Defense of Marriage Act. If the United States Supreme Court finds provisions of the Defense of Marriage Act unconstitutional, the federal government would potentially have to extend all the federal benefits of opposite-sex marriages to same-sex marriages in those states in which same-sex marriages are allowed. Moreover, if the United States Supreme Court does not reverse the 9th Circuit's ruling or the District Court's ruling in Hollingsworth v. Perry, California would once more allow same-sex marriages. If both of these cases reached these outcomes, an employee in a same-sex marriage would no longer incur increased federal income taxes. No matter the United States Supreme Court's actions, the federal government would likely still not accord beneficial tax treatment to either opposite-sex or same-sex domestic partnerships, hence the bill's provisions regarding domestic partners would still be relevant. Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081