Weekly Round-Up: State Level Filing Complications for Same-Sex Couples

One of the most notable opinions from the U.S. Supreme Court this year was its decision in United States v. Windsor, No. 12-307 (June 26, 2013), which struck down section three of the Defense of Marriage Act (DOMA), a new Special Report, Bloomberg BNA State Tax Advisory Board Roundtable, by Bloomberg BNA explains. The holding allows same-sex couples to be recognized as married for federal tax purposes.

One of the main holdings of the decision is that the federal government will defer to the states on the question of marriage. However, the Court left unanswered how the federal government would recognize same-sex  marriage for tax purposes when the same-sex couple's state of residence does not allow them to be married.

Guidance released by the IRS after the Bloomberg BNA State Tax Advisory Board Roundtable suggests that the federal government's deference to the states will be limited.  Same-sex  couples will be recognized by the federal government as married, if the state in which they were married recognizes the union.

As a result, a  same-sex couple residing in a state that does not recognize same-sex  marriage could file a joint federal return if they were married in a state that recognizes same-sex  marriages or civil unions.

Complications still exist for same-sex  couples who, in many cases, must file separately for state tax purposes even after filing jointly at the federal level. At present, guidance from the states on how to compute taxable income under this scenario is lacking. Some of the states that have provided guidance so far include Colorado, Louisiana, Wisconsin and New York.

Roundtable participants cautioned that any deference of the High Court toward the states does not suggest that Congress is reluctant to exert its authority in state tax matters.

The general consensus among the participants was that Windsor would likely have little impact on state tax jurisprudence.

A complete state-by-state analysis of the state tax filing options for same-sex couples is available here.

A transcript of the Roundtable, along with further analysis and background information on topics including the future of the Multistate Tax Compact and state efforts to impose sales tax nexus on remote retailers, is available in this week's issue of the Bloomberg BNA Weekly State Tax Report.

In other developments…

Indiana - Physical presence required for corporate income tax and insurance premiums tax , by PwC

When Corporations Leave So Does Tax Revenue , by the Tax Foundation

Isn't It a Sham? Indiana Disallows Deduction for Interest Payments Made to Affiliate , by Sutherland

Compiled by Priya D. Nair
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