Various states now recognize relationships between people of the same sex, but due to the Defense of Marriage Act, the federal government does not. In the context of income taxes, this combination of state recognition and federal non-recognition of same-sex relationships produces a significant problem for many same-sex couples and some state taxing authorities. Most states have income tax and, typically, state income tax laws "piggyback" on federal income tax laws. Depending on the state, same-sex couples in legally-recognized relationships must file their state income tax returns as married (either "filing jointly" or "filing separately"), as domestic partners, or as parties to a civil union. Such same-sex couples cannot, however, file their federal income tax returns as a couple. For same-sex couples, this situation creates uncertainty and complications and probably increases the risk of audit. It is also an unfair affront to the dignity of lesbians, gay men, and bisexuals. The Article examines this problem by surveying the guidance from thirteen states and the District of Columbia with respect to the taxation of same-sex relationships and by considering each jurisdiction's actual income tax practices. The Article also recommends best practices for state taxing authorities, including: (1) amending state tax laws to specifically allow joint filing by same-sex couples; (2) issuing more guidance to same-sex couples on specific relevant issues; (3) adding boxes to state tax returns to indicate that these returns will involve nonconformity with federal filing status; and (4) not requiring same-sex couples who file state joint income tax returns to also complete "pro forma" federal "married" income tax returns.
Starting in 2000, some states began to legally recognize same-sex relationships. (1) This legal recognition sometimes takes the form of marriage and sometimes takes the form of a relationship identical to or nearly identical to marriage for purposes of state law. However, due to the Defense of Marriage Act (DOMA), (2) the federal government has refused to recognize these relationships in most circumstances. (Some states have enacted laws or constitutional amendments that have a similar effect in the respective states.) (3) This non-recognition produces a peculiar state of affairs: a same-sex couple with a legally-recognized relationship from one state will find that their relationship has no legal status in other states, a different legal status in still other states, and only a limited status in the eyes of the federal government. (4) This patchwork of recognition and non-recognition cuts across a variety of contexts related to family law. While this situation is not unprecedented in U.S. history (for example, until 1967, a similar patchwork of legal recognition and non-recognition existed for interracial marriages) (5), the situation is both peculiar and problematic.
This problematic state of affairs is made possible partly by the federalist form of government in the United States and can be analyzed generally as a conflict of laws issue. There are virtues and vices to federalism and the patchwork of state laws it can potentially produce. In this paper, rather than critique the patchwork that exists today, we take it as a given for the time being and focus on one particular locus of law affected by the varied landscape for same-sex relationships, namely income tax. Looking at state income taxes in light of the federal government's refusal to recognize legally-sanctioned same-sex relationships provides a unique lens into the patchwork of recognition and non-recognition for same-sex relationships. The existence of this patchwork has been frequently discussed by commentators, but here we offer a detailed case study of the phenomenon in the distinctive context of state income taxes.
In a state with an income tax, when a same-sex couple marries, enters a civil union, or enters a certain type of domestic partnership, both the couple and the state taxing authority will have to deal with an assortment of distinctive tax-related issues because the federal government does not recognize same-sex relationships for tax purposes. (6) While not all states with an income tax have issued guidance to taxpayers in same-sex relationships about how to comply with state income tax requirements in the face of federal non-recognition, a significant body of guidance has now been created. Without such important guidance, same-sex couples in legally-recognized relationships face unclear and more complicated tax filing scenarios that result in greater hassle, greater tax-preparation expenses, and greater risk of audit. Further, the lack of good guidance exacerbates the inequality and dignitary harm that exists because of DOMA.
The project of looking at the effect of DOMA on state income tax has an additional benefit of undermining two common and mistaken ideas, one about family law and one about tax law. First, it is commonly assumed that family law is, at least primarily, state law. (7) Second, it is commonly assumed that tax law is primarily federal law. Both assumptions are unfounded. There is a great deal of family law that is federal law, including immigration law, social security law, citizenship law, welfare law, veteran benefits law, etc. (8) Furthermore, although most individuals pay more federal than state income tax, state tax law is more varied and complicated and contains most of the interesting constitutional issues under the Due Process, Commerce, Equal Protection, and Privileges and Immunities Clauses. Focusing on a topic at the intersection of family law and tax law provides an important perspective to make evident the interest and importance of both state income tax and federal family law.
More specifically, this article focuses primarily on two issues: (1) whether and how jurisdictions permit same-sex couples to file married (or equivalent to married) income tax returns (jointly or separately), and (2) what, if any, guidance those jurisdictions have given to same-sex couples to comply with tax and related laws dealing with marriage or other legally-recognized adult domestic relations. We survey the guidance and the actual practices of states and identify some of the more interesting issues in state income taxation of legally-recognized same-sex relationships. This article offers an up-to-date survey of different states' approaches to income tax related to same-sex relationships, thereby providing a snapshot in a fast-developing field. (9) This is useful for same-sex couples deciding whether or not to solemnize their relationships and where to do so. More importantly, we also make normative recommendations for the best practices that have been developed among the states. Among those best practices we recommend are: (1) amending state tax laws to specifically allow joint filing by same-sex couples, rather than having state revenue departments effectively tell taxpayers to ignore the literal language of some of their current tax laws; (2) issuing more guidance to same-sex couples on specific issues to help them comply with state laws (along the lines of guidance issued by California, Oregon, and even the Internal Revenue Service); (3) adding to the first pages of state returns boxes that can be checked to indicate to the taxing authorities that these returns will inevitably involve nonconformity with federal filing status because the fliers constitute a same-sex couple,; and (4) reducing taxpayer burdens and errors by not requiring same-sex couples in all cases to prepare and, even, in some cases, attach to their state joint income tax returns complete "pro forma" federal "married" income tax returns.
In Part I, we first look at the relationship between federal income tax and state income tax in computing taxable income. Next we review the different filing statuses that are available to taxpayers. And, finally, we consider the effect of DOMA on state income taxes generally. In Part II, we first survey the relevant tax and family law landscape. Then, in the remainder of Part II and in Part III, we offer a state-by-state detailed review of the approaches of states that recognize same-sex relationships, beginning with states that recognize same-sex marriages (Part II) and then turning to those states with civil unions and domestic partnerships (Part III). In Part IV, we make recommendations about the best practices for state income tax of same-sex relationships in the current context.
The Relationship of Federal and State Income Tax and the Effect of DOMA
Before discussing in detail in Parts II and III the specific authorities on joint filing of state income tax returns in the states relevant to this article, we briefly review the structure of state income tax in the United States and the issue of federal conformity both generally and as to filing status (i.e., single, head of household, married filing jointly, and married filing separately).
Why States with Personal Income Taxes Partly Rely on Federal Income Tax Rules
When states decided to adopt personal income taxes, they invariably decided to piggyback to a large degree on definitions of income, deductions, and credits in what, by 1939, became the Internal Revenue Code (Title 26 of the United States Code). Federal conformity at least as to some matters helps both taxpayers and the states. For taxpayers, federal conformity on income, expenses, and credits reduces bookkeeping, accounting, and tax preparation costs. A tax preparer only needs to make a few adjustments to the federally computed items to finish the state income tax returns for the same tax year. For state revenue departments, federal conformity eases the burden of time and expense relating to audits. First, federal definitions are most likely to have generated interpretations in courts and regulatory guidance specific to particular taxpayers, so state revenue...