BILL ANALYSIS
------------------------------------------------------------
|SENATE RULES COMMITTEE | AJR 29|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: AJR 29
Author: Feuer (D)
Amended: 6/29/10 in Senate
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE : 3-0, 6/23/10
AYES: Wolk, Alquist, Padilla
NO VOTE RECORDED: Walters, Ashburn
ASSEMBLY FLOOR : 61-8, 4/22/10 - See last page for vote
SUBJECT : Federal income tax: same-sex couples
SOURCE : Equality California
DIGEST : This resolution asks the Internal Revenue
Service to issue a new ruling with respect to the federal
revenue tax treatment of registered domestic partners and
same-sex married couples.
ANALYSIS : Existing federal law recognizes the
characteristics of property ownership, including community
property, are determined by the states, and taxation of
that property is determined by the federal government.
Pursuant to the Internal Revenue Services (IRS's) Chief
Counsel Advisory Memorandum (CCA) 201021020, released May
28, 2010, for tax years beginning after December 31, 2006,
a California registered domestic partners (RDP) must report
one-half of the community income, whether received in the
form of compensation for personal services or income from
CONTINUED
AJR 29
Page
2
property, on his or her federal income tax return. CCA
materials are written advice or instructions prepared by
the Office of Chief Counsel and issued to field or service
center employees of the IRS or Office of Chief Counsel.
Existing state law
1. Provides that all property "acquired by a married person
during the marriage while domiciled in California is
community property" and that the interests of the
husband and wife in community property during marriage
are "present, existing and equal interests."
2. Extends certain rights of married couples to RDPs who
register their partnership with the California Secretary
of State. "Domestic partners" are defined are two
adults who have chosen to share one another's lives in
an intimate and committed relationship of mutual caring.
A domestic partnership is established when both persons
file a Declaration of Domestic Partnership with the
Secretary of State and meet specific requirements.
3. Recognizes same-sex marriages for couples granted
licenses and married during the period of June 16, 2008
through November 4, 2008. Strauss v. Horton , 46 Cal.4th
364 (2009).
4. Requires RDPs and same-sex spouses file state income tax
returns using the same rules that apply to heterosexual
spouses. Accordingly, RDPs or same-sex spouses who file
separate income tax returns must report one-half of the
combined income earned by both domestic spouses rather
than their individual income for the taxable year.
This resolution makes a request from the Legislature asking
the IRS to issue a Revenue Ruling that applies the legal
analysis and conclusions of the May 28, 2010 IRS CCA, and
the California case law and statutes cited above, to both
California RDPs and same-sex married couples. This bill
requests that, consistent with established legal
precedents, the IRS defer to California law on treatment of
property belonging to same-sex married spouses, including
the existence of community property, so that for tax years
beginning after December 31, 2010, when filing separate
AJR 29
Page
3
federal income tax returns, each same-sex spouse must
include in his or her gross income one-half of the
community's income.
This resolution asks that for tax years beginning before
January 1, 2011, the Legislature requests that the Revenue
Ruling referred to above further determine that same-sex
married couples may, but are not required to, amend their
returns to report income in accordance with the Revenue
Ruling. This resolution also makes findings to support the
request and resolves that the Chief Clerk of the Assembly
transmit copies of this resolution to specified elected
officials.
Background
On September 19, 2003, the California Domestic Partner
Rights and Responsibilities Act of 2003 (Act) was enacted,
effective January 1, 2005 (AB 205 [Goldberg], Chapter 421,
Statutes of 2003). The Act granted to RDPs "the same
rights, protections, and benefits and shall be subject to
the same responsibilities, obligations and duties under law
whether they derive from statutes, administrative agencies,
court law, or any other provisions or sources of law, as
are granted to and imposed upon spouses." However, the
enacted version of the Act deleted the original provision
to allow RDPs to file joint income tax returns for
California state tax purposes and to be taxed in the same
manner as married couples. SB 1827 (Migden), Chapter 802,
Statutes of 2006, was enacted to remove the inconsistencies
created between RDPs and spouses in the Act. Specifically,
it permitted RDPs to file their income tax returns jointly
or separately, similar to those terms governing spouses.
Additionally, the earned income of RDPs was recognized as
community property.
In 2005 a letter was sent to the Treasury Department
seeking guidance on how to file federal income tax forms
pursuant to the Act. Chief Counsel Advisory Memorandum
200608038, dated February 24, 2006, concluded an individual
who is a registered domestic partner in California must
report all of his/her income earned from the performance of
his/her personal services notwithstanding the enactment of
the Act. In its Memorandum, the IRS relied on Poe v.
AJR 29
Page
4
Seaborn , 282 U.S. 101 (1930), which addressed the issue of
whether income earned by a husband is rightfully taxed to
his wife in a community property state. The Court held
that husband and wife were entitled to file separate
returns with each treating one-half of the community
property as his/her respective income. The Memorandum
stated, "The case law relating to income-splitting in
community property states has always arisen solely in the
context of spouse. We do not believe that the Poe v.
Seaborn decision applies to the application of a state's
community property law outside the context of a husband and
wife. In our view, the rights afforded domestic partners
under the California Act are not "made an incident of
marriage by the inveterate policy of the State." The
relationship between registered domestic partners under the
California Act is not marriage under California law.
Therefore, the Supreme Court's decision in Poe v. Seaborn
does not extend to registered domestic partners. "
The author's office asserts, "Although the IRS found in its
2006 Memorandum 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
had nothing to do with the evaluation of the property
rights of registered domestic partners and same-sex married
couples under state law. In other words, the federal
government need not recognize the marital status of
registered domestic partners or same-sex married couples in
order to defer to state law characterizing their interests
in income as community property."
The IRS subsequently reversed its position in a Chief
Counsel Advisory Memorandum dated May 28, 2010, declaring,
in part, "By 2007, California had extended full community
property treatment (FN1) to registered domestic partners.
Applying the principle that federal law respects state law
property characterizations, the federal tax treatment of
community property should apply to California registered
domestic partners." (FN1) Prior to January 1, 2007, the
earned income of a registered domestic partner was treated
as community property for state property law purposes but
not for state income tax purposes.
FISCAL EFFECT : Fiscal Com.: No
AJR 29
Page
5
SUPPORT : (Verified 6/29/10)
Equality California (source)
Board of Equalization Chair, Betty Yee
City and County of San Francisco
Controller John Chiang
Treasure Bill Lockyer
City of West Hollywood
Sacramento Lawyers for the Equality of Gays and Lesbians
Mayor of Los Angels, Antonio Villaraigosa
ARGUMENTS IN SUPPORT : According to the author's office,
"This measure seeks equal federal tax treatment for
same-sex couples. Specifically, it asks the IRS to issue a
binding Revenue Ruling that for federal income tax
purposes, California registered domestic partners and
same-sex married couples must claim a community property
interest in the income of both partners, instead of
reporting all of each partner's income separately without
reference to the other partner's income. Prior to the May
28, 2010 CCA, for federal income tax purposes both
California registered domestic partners and same-sex
spouses were required to report their incomes separately
and without reference to each other, and could not claim a
community property interest in their incomes. As a result,
in cases where partners or spouses were in different tax
brackets, the partners would pay more in federal taxes.
This faulty interpretation of the law was set forth in an
IRS Memorandum from February 24, 2006. Now that California
registered domestic partners must, for federal income tax
purposes, claim community property rights in their income
under the May 28, 2010 CCA, this measure seeks the same
treatment for California same-sex spouses."
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Arambula, Bass, Beall, Blakeslee,
Block, Bradford, Brownley, Buchanan, Charles Calderon,
Carter, Chesbro, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Emmerson, Eng, Evans, Feuer, Fletcher, Fong,
Fuentes, Furutani, Galgiani, Hagman, Hall, Harkey,
Hayashi, Hernandez, Hill, Jeffries, Jones, Lieu, Bonnie
AJR 29
Page
6
Lowenthal, Ma, Mendoza, Monning, Nava, Nestande, Niello,
Nielsen, V. Manuel Perez, Portantino, Ruskin, Salas,
Saldana, Skinner, Smyth, Solorio, Swanson, Torlakson,
Torres, Torrico, Tran, Villines, Yamada, John A. Perez
NOES: Anderson, Tom Berryhill, Fuller, Gaines, Knight,
Logue, Miller, Silva
NO VOTE RECORDED: Bill Berryhill, Blumenfield, Caballero,
Conway, Garrick, Gilmore, Huber, Huffman, Norby, Audra
Strickland, Vacancy
DLW:do 6/29/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****