Tax Woes for Same-Sex Couples Extend Beyond Income Tax Filing Issues

With the recent court rulings in Oregon and Pennsylvania and with Illinois legislation that went into effect in June, 44 percent of the U.S. population now live in places that have legalized same-sex marriage, encompassing 19 states and the District of Columbia, according to a Bloomberg News article. Lower courts in Arkansas, Idaho, Michigan, Oklahoma, Texas, Utah and Virginia have struck down bans on same-sex marriage, though enforcement of the rulings have been stayed while the appeals work their way through the courts. Most of the attention on this issue has centered on income tax filing, but controversies are simmering over other types of taxes as well.

Many tax issues are central to the same-sex marriage discussion, even if they don’t always grab the headlines. In United States vs. Windsor, the Supreme Court case that overturned the federal ban on same-sex marriage in the Defense of Marriage Act (DOMA), the case concerned a woman seeking a federal tax exemption for the estate left to her by her deceased same-sex spouse. The court in Windsor, when listing burdens faced by same-sex couples, noted that DOMA forced them “to follow a complicated procedure to file their state and federal taxes jointly.” As previously covered on this blog and according to a January 2014 Tax Foundation special report, different states with a same-sex marriage ban follow several different approaches to same-sex married couples filing tax returns.

Same-sex couples also have property tax concerns. The Alaska Supreme Court recently ruled on Alaska v. Schmidt, a property tax case involving same-sex couples, according to a Bloomberg BNA Weekly State Tax Report article. The court held that a homestead tax exemption that was available to opposite-sex married couples, where only one person qualified, should be allowed for similarly-situated same-sex couples. Although Alaska does have a ban on same-sex marriage, the court found that the homestead tax exemption program violated the equal protection clause of the Alaska Constitution. This ruling left the same-sex marriage ban intact, based on the particular wording of the Alaska Marriage Amendment, but extended a tax benefit to same-sex couples. This case creates an interesting dichotomy, as the court found that the law “facially discriminates based on sexual orientation” specifically because same-sex couples cannot marry in Alaska.

With dozens of cases still pending in state courts, same-sex marriage laws are a constantly shifting landscape, but the tide seems to be turning towards more states allowing it.

*Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn:  What are the most important tax considerations for married same-sex couples right now?

For more information about the recognition of same-sex marriages in the 50 states, check out Bloomberg BNA’s Individual Income Tax Navigator by signing up for a free trial of the Bloomberg BNA Premier State Tax Library today.

By:  Rishi Agrawal

Follow BBNA on Twitter at: @BBNATax.