BILL ANALYSIS Ó
AB 362
Page 1
ASSEMBLY THIRD READING
AB 362 (Ting)
As Amended May 21, 2013
Majority vote. Tax levy
REVENUE & TAXATION 7-2 APPROPRIATIONS 12-5
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|Ayes:|Bocanegra, Gordon, |Ayes:|Gatto, Bocanegra, |
| |Mullin, Nestande, Pan, V. | |Bradford, |
| |Manuel Pérez, Ting | |Ian Calderon, Campos, |
| | | |Eggman, Gomez, Hall, |
| | | |Ammiano, Pan, Quirk, |
| | | |Weber |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Dahle, Harkey |Nays:|Harkey, Bigelow, |
| | | |Donnelly, Linder, Wagner |
| | | | |
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SUMMARY : Excludes from state gross income compensation received
from an employer for the additional federal income tax liability
incurred 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, including any compensation for the
additional federal income tax liability incurred with respect to
those amounts. Specifically, this bill :
1)Excludes from state gross income compensation received from an
employer for the additional federal income tax liability
incurred 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 for purposes of the
federal exclusion of employer-provided health coverage.
2)Excludes from state gross income any compensation for the
additional federal income tax liability incurred with respect
to the original compensation amount.
3)Takes immediate effect as a tax levy.
4)Sunsets these provisions on January 1, 2019.
EXISTING FEDERAL LAW :
AB 362
Page 2
1)Excludes from federal gross income health insurance provided
by an employer to an employee, an employee's dependents, and
an employee's opposite-sex spouse.
2)Includes in an employee's federal gross income health
insurance provided by an employer to a domestic partner, a
same-sex spouse, or the domestic partner's or same-sex
spouse's dependents.
3)Includes in federal gross income any amount paid by another on
behalf of a taxpayer to discharge a liability of the taxpayer,
including a tax liability.
EXISTING STATE LAW :
1)Excludes from state gross income health insurance provided by
an employer to an employee, an employee's dependents, an
employee's spouse, or an employee's domestic partner,
regardless of whether the employee's spouse or domestic
partner is the same or opposite sex of the employee.
2)Includes in state gross income any amount paid by another on
behalf of a taxpayer to discharge a liability of the taxpayer,
including a tax liability.
FISCAL EFFECT : The Franchise Tax Board (FTB) has provided the
following revenue estimate:
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| For Taxable Years Beginning on or after January 1, 2013 |
| |
| Assumed Enactment after June 30, 2013 |
| |
| |
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AB 362
Page 3
| |
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|-------------+----------------+----------------+----------------|
|Fiscal Year | 2013-14 | 2014-15 | 2015-16 |
|-------------+----------------+----------------+----------------|
|Amount | -$80,000 | -$60,000 |-$70,000 |
| | | | |
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COMMENTS :
1)The author has provided the following statement in support of
this bill:
At the heart of this issue is a question of fairness
for same-sex couples. 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. This legislation will expand on, and
strengthen, California's rich history of
non-discrimination.
2)Proponents state:
Unfortunately, because the federal Defense of Marriage
Act (DOMA) prohibits recognition of same-sex
partnerships, the government treats health insurance
benefits provided through a same-sex spouse's or
domestic partner's employer as income and taxes them.
The federal government does not tax these benefits as
income for different-sex couples. 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)Assembly Revenue and Taxation Committee staff comments:
a) A paradox - this bill is both cutting edge and
potentially moot : As far as the Assembly Revenue and
Taxation Committee is aware, no state has ever crafted an
income exclusion based upon a taxpayer's federal tax
AB 362
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liability. Were this bill to become law, it would
represent a novel and historic development in tax law.
However, even though this bill breaks new ground, this bill
is still potentially moot, depending upon the actions of
the United States Supreme Court.
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, this bill
would affect little change in the law. An employee in a
same-sex marriage would no longer incur increased federal
income taxes and, as such, there would be no additional
federal income tax liability to offset.
There is only one change proposed by this bill that would
survive such rulings by the United States Supreme Court.
It concerns domestic partners. 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. An
employer could still choose to "gross up" an employee's
wages to offset the increased federal income tax liability
of the employee. This bill would continue to exclude such
offsets from the employee's California gross income,
provided the domestic partner was a same-sex domestic
partner.
AB 362
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In such a situation, same-sex domestic partners could marry
and avoid increased federal income taxes in the first
place. Although some couples might not wish to marry for
any number of reasons, it is unclear California should
forego state tax revenue when such couples could reduce
their federal tax liabilities on their own and choose not
to. Encouraging tax neutrality between marriage and
domestic partnerships would be the only justification to
continue to provide an exclusion even when taxpayers do not
need one. If such tax neutrality between marriage and
domestic partnerships is the goal however, it is not clear
why this bill does not provide an exclusion for
opposite-sex domestic partners as well.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0000741