California yesterday sent a bill, sponsored by Democrat Carole Midgen, to the governor for signature that does what the federal government should do--it treats registered same-sex partners the same as married opposite-sex couples for purposes of filing status. Under the bill, S.B. 1827, domestic partners who are registered under California law (see this California Franchise Board site regarding the requirements for registration, but note that this site describes current law on filing status and community property treatment rather than the recently passed S.B. 1827) will be permitted to file either a joint or separate return for state tax purposes. In other words, domestic partners will have the same choices that married couples have as to filing status. The Governor will have until September 30 to sign or veto the bill.
The California legislature was clear, in the preamble to the bill, about its rationale in enacting this change. It recognized the importance of protecting rights in a way that leads to stable family relationships.
It is the policy of the state to provide all caring and
committed couples, regardless of their sex or sexual orientation, the
opportunity to obtain essential rights and to assume corresponding
responsibilities, and to further the state's compelling interests in
promoting stable and lasting family relationships in this state by
affording comprehensive protections under state law. Id.
Further, it noted that this change addresses the unequal protection and discriminatory nature of rules that permit married couples who assume fiscal responsibility for each other to enjoy the benefits of joint filing and community property treatment, while registered partners who assume the same responsibility cannot.
The California Domestic Partner Rights and Responsibilities
Act of 2003 created inequality between spouses and registered
domestic partners by excluding joint income tax filing from the
rights, protections, and responsibilities afforded to registered
domestic partners. The California Domestic Partner Rights and
Responsibilities Act of 2003 created further inequality by providing
that the earned income of registered domestic partners shall not be
treated as community property for state income tax purposes, as is
done for the earned income of spouses, notwithstanding that domestic
partners assume full financial responsibility for each other as do
The legislation thus provides a broad statement of equal treatment under the law for domestic partners.
Registered domestic partners shall have 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 regulations, court rules,
government policies, common law, or any other provisions or sources
of law, as are granted to and imposed upon spouses. Id.
Note that the IRS had earlier ruled unfavorably on the treatment of California domestic partners. See this Gay City News item providing a good bit of history and this ABA discussion. It notes that the IRS, in Memorandum 200608038, ruled that domestic partners declare their own earned income separately for federal income tax purposes, regardless of the fact that half of the income vests in their domestic partners as the income accrues. The ABA discussion goes on to note the possible transfer and income tax consequences of the different federal treatment for domestic partners.
California domestic partners are publicly registered and required by law to share their incomes with their partners. If the income sharing imposed on California domestic partners is subject to federal gift tax, all annual earnings above twice the annual exclusion (earnings give rise to a present interest) should require the filing of a Form 709 and if and when the lifetime exemption is exceeded, a gift tax at the 46% rate (or 45% after 2006) will be due. ...The fact that the earner must pay income tax on both halves exacerbates the problem. ABA discussion.
The IRS position was based on an analysis that California law did not treat domestic registered partners the same as marriage. It specifically noted that the original proposal for domestic partner registration would have allowed domestic partners to file joint tax returns but that the enacted version did not and then proceeded to discuss the case law on community property states' income-splitting rules as having "arisen solely in the context of spouses." Ultimately, the IRS based its decision on the fact that the relationship created by the California registered domestic partner law was "not marriage." The San Francisco Chronicle concluded that this ruling rested on "bigotry, rather than logic." See IRS Plays Politics with Tax Code, San Francisco Chronicle, April 16, 2006.
Query whether the IRS analysis must now change, based on the change in California law through S.B. 1827 (assuming it is signed into law) plus a California court decision holding that "Firms must treat domestic partners like married pairs, top state court says," San Francisco Chronicle (Aug. 2, 2006). See also this discussion of the case by west coast law firm Perkins Coie. California's new law (and court decision) treats registered domestic partners in all respects the same as married couples. Shouldn't this mean that the federal government should do the same?
ADDENDUM: See the October 23, 2006 posting which provides a more extensive analysis of the IRS February 2006 memorandum interpretation that Poe v. Seaborn applies only in the context of marriage and also discusses the Defense of Marriage Act.