BILL ANALYSIS
AJR 29
Page 1
ASSEMBLY THIRD READING
AJR 29 (Feuer)
As Amended April 19, 2010
Majority vote
REVENUE & TAXATION 8-0
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|Ayes:|Portantino, DeVore, | | |
| |Beall, | | |
| |Charles Calderon, Coto, | | |
| |Fuentes, Nestande, | | |
| |Saldana | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Asks the Internal Revenue Service (IRS) to reconsider
a specified memorandum and to issue a new memorandum with
respect to the federal income tax treatment of property rights
of registered domestic partners (RDPs) and same-sex spouses.
Specifically, this resolution :
1)Contains the following findings and declarations:
a) On February 24, 2006, the IRS issued a memorandum (IRS
Memorandum) indicating that an individual who is a RDP in
California must report all of his/her income earned from
the performance of his/her personal services,
notwithstanding the California Domestic Partner Rights and
Responsibilities Act of 2003;
b) For federal income tax purposes, California RDPs may not
claim a community property interest in the income of both
partners, but instead have to report all of each RDP's
income separately, without reference to the income of the
other partner;
c) The IRS Memorandum found that state community property
laws apply only to a husband and wife in a heterosexual
marriage, and not outside that context;
d) The IRS Memorandum further indicated that the rights
afforded RDPs under the California Domestic Partner Rights
and Responsibilities Act of 2003 were not made an incident
of marriage by the inveterate policy of the state and that
the relationship between RDPs was not marriage under
California law, and that accordingly they could not file
separately with each claiming one-half of the community's
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total earned income for federal tax purposes;
e) Federal case law holds that the characteristics of
property ownership, including community property, are
determined by the states, and taxation of that property is
determined by the federal government;
f) The Supreme Court of the United States has held that the
IRS must defer to state law determining property ownership,
including the existence of community property;
g) Pursuant to a Presidential Memorandum Regarding
Preemption that the White House issued on May 20, 2009,
preemption of state law by executive departments and
agencies should be undertaken only with full consideration
of the legitimate prerogatives of the states and with a
sufficient legal basis for preemption;
h) California statutes and case law confirm that RDPs and
married same-sex couples whose marriages remain valid under
California law have the same rights and responsibilities
under California law as different-sex married couples,
including those rights and responsibilities related to
community property, and further, that California income tax
reporting is the same for RDPs and married individuals;
and,
i) Property, including income, acquired while domiciled in
California by RDPs or married same-sex couples whose
marriages are still valid in California, is community
property under California law.
2)Asks the IRS to reconsider the IRS Memorandum and to issue a
new memorandum based on the fact that settled federal law
acknowledges the state's role in defining property rights and
the federal government's role in deciding how it will be taxed
for federal purposes.
3)Notes that SB 1827 (Migden), Chapter 802, Statutes of 2006,
corrected an exception for state income tax purposes of earned
income from RDPs' community property under AB 205 (Goldberg),
Chapter 421, Statutes of 2003, such that California RDPs and
same-sex spouses now are required to file state income tax
returns using the same rules that apply to heterosexual
spouses, including the choice between filing jointly or
separately with a reference to the filer's marital or
registration status, thus making California income tax
reporting the same for RDPs and married individuals regardless
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of sexual orientation.
4)Requests that, consistent with established legal precedents,
the IRS defer to California law on the treatment of property
belonging to RDPs and same-sex spouses, including the
existence of community property, so that when filing separate
federal income tax returns, each RDP and same-sex spouse
should include in his/her gross income one-half of the
community's income.
EXISTING FEDERAL LAW provides that California RDPs and same-sex
spouses must report their incomes separately and cannot claim a
community property interest in their incomes.
EXISTING STATE LAW :
1)Provides that, as a general rule, all property acquired by a
married person during the marriage while domiciled in
California is community property. As a result, a spouse in
California who files his/her tax return separately must
include in gross income one-half of the combined community
income of both spouses.
2)Provides that RDPs have the same rights, protections, and
benefits, and are 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 source of law, as are
granted to and imposed upon spouses.
3)Requires RDPs who file separate income tax returns to each
report one-half of the combined community income earned by
both domestic partners, as spouses do, rather than their
respective individual incomes for the taxable year.
FISCAL EFFECT : Unknown
COMMENTS : The author has provided the following statement in
support of this resolution:
This measure seeks equal federal tax treatment for
same-sex couples. Because California [RDPs] and
same-sex spouses must report their incomes separately
for federal purposes, those individuals in a higher
income tax bracket than their partners must pay more
federal taxes. This faulty interpretation of the law
is set forth in an IRS Memorandum from February 24,
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2006.
Although the IRS stated that state community property
laws apply only to a husband and wife in a
heterosexual marriage, implicating the federal
Defense of Marriage Act, that Act has nothing to do
with the evaluation of the property rights of [RDPs]
and same-sex married couples under state law. In
other words, the federal government need not
recognize the marital status of [RDPs] or same-sex
married couples in order to defer to state law
characterizing their interests in income as community
property.
Federal case law holds that states, not the federal
government, determine the characteristics of property
ownership. So for federal income tax purposes the
federal government - in this case the IRS - must
respect California's community property rights, which
are granted to both married couples and [RDPs].
This Joint Resolution will be sent to the IRS asking
it to reconsider its statements in the February 2006
Memorandum and issue a new Memorandum deferring to
California law so that [RDPs] and same-sex married
couples receive the same tax treatment from the
federal government as they do under California law.
Proponents state, "In our federal system, family and property
rights are matters of state law. Traditionally, federal tax
authorities recognize state law when applying tax provisions
based on family relationships or community property rights. The
[IRS Memorandum] deviates from this central principle of our
federal system. It should be reconsidered as called for in AJR
29." In addition, proponents state, "Same-sex couples in
California have legal rights under the Domestic Partner Rights
and Responsibilities Act of 2003 and the California Supreme
Court's 2009 decision in Strauss v. Horton, [2009 46 Cal. 4th
364]. For state and federal tax purposes, these are the law of
the land. Federal tax authorities must respect the legal rights
of same-sex couples similar to the manner in which they have
recognized other state law-based family and property
relationships."
Opponents state, "This bill would allow the minority in this
state to once again speak for the majority. The people of this
great State have voiced their opinion about who makes up the
family . . . not once but twice. This country was founded on
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the fact that the individual could participate in the process .
. . and that the majority rule. Again - the MAJORITY of the
citizens of this state have already decided the formation of the
family - please do not step on us yet again by choosing to
ignore our voices and how this country is supposed to work."
Committee Staff Comments:
1)Community Property Income: In community property states like
California, property that spouses acquire during their
marriage is generally regarded as owned by them together, with
each owning an undivided interest in the whole property.
Similarly, income from the property is divided equally between
them. While each state has different rules for classifying
income as either separate or community property, under the
general rule, salaries, wages, and other compensation for the
services of either spouse are considered community income.
Thus, if a married couple residing in a community property
state files separate returns, one-half of the community income
must be reported by each spouse.
2)Treatment of RDPs under California Law: Existing law provides
that RDPs have the same rights, protections, and benefits, and
are 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 source of law, as are granted to and
imposed upon spouses. This includes community property
rights. Thus, RDPs who file separate income tax returns must
each 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.
3)The IRS Memorandum: On February 24, 2006, the IRS's Office of
Chief Counsel issued a memorandum addressing the manner in
which the California Domestic Partner Rights and
Responsibilities Act of 2003 is to be taken into account in
computing the federal income tax of a RDP. Specifically, the
IRS Memorandum addressed the question of whether a California
RDP is required to include in gross income all of his/her
earned income or one-half of the combined income earned by the
RDP and his/her partner. The IRS Memorandum concluded that a
California RDP must report all of his/her income earned from
the performance of his/her personal services. In reaching
this conclusion, the IRS Memorandum acknowledged that, in
1930, the United States Supreme Court held that a married
couple in Washington was entitled to file separate returns,
each treating one-half of the community income as his/her
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respective income. Poe v. Seaborn, 282 U.S. 101 (1930). (See
also United States v. Malcolm, 282 U.S. 792 (1931), which
applied the holding in Poe v. Seaborn to California's
community property regime.) Nevertheless, the IRS Memorandum
concluded, with little explanation, that, "The relationship
between [RDPs] under [California law] is not marriage under
California law. Therefore, the Supreme Court's decision in
Poe v. Seaborn does not extend to [RDPs]." Consequently, for
federal tax purposes, an individual who is a RDP in California
must report all of his/her income earned from the performance
of his/her personal services, notwithstanding California law.
4)Treatment of RDPs and Same-Sex Spouses under Federal Law: As
noted above, for federal income tax purposes, California RDPs
and same-sex spouses must report their incomes separately and
cannot claim a community property interest in their incomes.
The author notes that, in cases where the partners or spouses
are in different tax brackets, this results in the partners
paying more in federal taxes.
5)What Would This Joint Resolution Do?: AJR 29 asks the IRS to
reconsider the IRS Memorandum and to issue a new memorandum
with respect to the federal income tax treatment of property
rights of RDPs and same-sex spouses. The author notes,
"Although the IRS found that state community property laws
apply only to a husband and wife in a heterosexual marriage,
implicating the federal Defense of Marriage Act, that Act has
nothing to do with the evaluation of the property rights of
[RDPs] and same-sex married couples under state law." The
author also notes that the federal government need not
recognize the marital status of RDPs or same-sex spouses to
defer to state law charactering their interests in income as
community property.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098 FN: 0003927