A Modest Proposal Regarding Same-Sex Marriage


It is not being controversial to say that there is a trend in the states in favor of permitting same-sex marriage. Previously, a broad array of employers had begun provide benefits for their employees' domestic partners. See generally Libert, Oringer & Raskin, "Same-Sex Marriage and Employee Benefits: The Approaching Revolution," 63 Empl. Ben. Plan Rev. 22.

As is well known, the tax laws have generally not been conformed to these evolving trends. As a result, the treatment of benefits to same-sex spouses and and other domestic partners can be problematic, to say the least, to employers and employees alike. One possible step that an employer might entertain in connection with resulting adverse tax consequences could be to make a tax gross-up payment in respect of the employee. Cf., e.g., DOL Adv. Op'n 2001-05A.

I make no comment whatsoever here on the policy considerations underlying same-sex marriage, domestic partnerships or the provision of benefits in these settings. I do think, however, that, once a jurisdiction decides to facilitate these relationships, it should explore ways in which any resulting ancillary difficulties are mitigated.

Similarly, I make no comment whatsoever here on the policy considerations underlying the question of whether an employer should take the unusual and possibly expensive step of making gross-up payments. Rather, I am considering those cases in which, for whatever reason, the employer indeed chooses to do so.

So, with that background, I would make a very narrow and limited suggestion. I suggest that, for those jurisdictions that permit same-sex marriage, any nondiscriminatory gross-up and similar payments made by the employer to help defray the adverse tax consequences to the employee and his or her same-sex spouse would be exempt from state income taxation and other state taxation. My thinking is that a state might not want to include, as taxable income, payments made to an individual by a party to ameliorate the impact of the interplay between the state's human-rights policies, on the one hand, and another sovereign's (the federal government's) tax rules, on the other. To me, that type of refinement is in the nature of a conforming change, consistent with what by hypothesis is the state's existing underlying decision to place same-sex marriage on an equal footing with historical marriage. The ultimate economic impact to the state treasury of the refinement I suggest may well be small (for example, there may not be many employers willing to provide a gross-up), but I think that such a refinement would at least show an effort by the states in question to proceed in this evolving world in a comprehensive and consistent manner.