BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 362
                                                                  Page  1

          Date of Hearing:   May 24, 2013

                                  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:              


          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.


           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  

           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
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            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