Dealing with DOMA: federal non-recognition complicates state income taxation of same-sex relationships.

Author:Smith, Carlton M.
Position:Defense of Marriage Act of 1996 - II. State Income Taxation of Same-Sex Marriages E. Vermont through Conclusion, with footnotes, p. 56-86
  1. Vermont

    In response to a 1999 decision of the Vermont Supreme Court, (93) in 2000, Vermont adopted the first civil union statute in the nation for same-sex couples. (94) That statute gave people in Vermont civil unions all the rights and responsibilities of marriage, and specifically stated that such rights included "laws relating to taxes imposed by the state." (95) Effective September 1, 2009, Vermont adopted same-sex marriage. (96)

    The Vermont Department of Taxes issued Technical Bulletin TB-55 (Oct. 7, 2010), (97) in which it gave the only guidance yet to taxpayers (97) on how legally-recognized same-sex couples are to file their Vermont income taxes. The guidance for those couples was limited to the issue of whether such couples can file jointly in Vermont, not how to treat specific items. The Bulletin emphasizes that, with minor exceptions, Vermont ordinarily requires that its taxpayers use the same filing status on their Vermont return as they do on their federal return.

    Vermont law provides as follows: "A husband and wife or a surviving spouse may file a joint Vermont personal income tax return for any taxable year for which the husband and wife or surviving spouse are permitted to file a joint federal income tax return under the laws of the United States." (99) DOMA, though, does not permit a person in a same-sex marriage to be a party to a joint federal income tax return, so this sentence would literally preclude a same-sex married couple from filing a Vermont joint income tax return. The Bulletin makes an exception to the statute for same-sex married couples and civil union members, stating, in part:

    For Vermont income tax purposes, civil union partners and same sex spouses are treated identically to traditionally defined spouses. This means that the couple must file their Vermont income tax return as Civil Union/ Married Filing Jointly or as Civil Union/Married Filing Separately. Such couples do not have the option of filing a Vermont return using the Single status. Because the federal government does not recognize same sex marriage or civil unions, a same sex couple is required to recompute their federal return for Vermont tax purposes only as either Married Filing Jointly or as Married Filing Separately. They should use the exemptions and deductions allowed by the IRS rules for those filing as Married Filing Separately or Married Filing Jointly. If the Married Filing Separately option is chosen, exemptions and deductions should be reasonably allocated between the civil union partners. This recomputed federal return should be attached to the Vermont return and clearly marked Recomputed for VT Purposes. A copy of the returns actually filed with the IRS should also be attached. The recomputed federal return should then be used as the basis for the Vermont Civil Union/Married Filing Jointly or Civil Union/Married Filing Separately tax return. (100) The Bulletin also allows different-sex spouses who filed jointly federally to file separately for Vermont purposes where only one is a resident. In such a case, the Bulletin also requires the preparation of pro forma separate federal returns and their attachment to the Vermont return, along with the actual federal joint return. (101) Vermont also requires nonresidents only part of whose income is from Vermont to attach the first two pages of their federal return--even if they are not using a filing status inconsistent with their federal return. (102) Thus, the requirement that same-sex couples prepare a pro forma federal joint return and attach it to the Vermont return, along with the actual federal return--although burdensome--is not more onerous than that imposed by the state for different-sex couples deviating from their federal filing status.

    The Vermont income tax return, in addition, contains an unusual box to be checked at the top of the first page that instructs fliers to "[c]heck here if using RECOMPUTED Federal Return information." (103) The instructions explain the purpose of this box as follows: "Because VT and IRS routinely share information, checking the recomputed Federal return box alerts the Department to expect differences between the IRS filing and VT filing." (104) Form IN-111, the personal income tax form for Vermont, also contains another unusual feature--separate filing status boxes that read: "CU Partner Filing Jointly" and "CU Filing Separately." (105)

  2. New Hampshire

    In 2007, New Hampshire enacted a law that treated same-sex couples in civil unions equivalently to married different-sex couples. (106) Effective January 1, 2010, New Hampshire adopted same-sex marriage and repealed civil unions, converting them into marriages as of January 1, 2011. (107) New Hampshire, unlike each of the twelve other relevant states, does not impose income tax on wages, but it does have an Interest and Dividend Tax, filed on Form DP-10. (It also has a business profits tax that can apply to individuals, but there is no joint filing of that form for married couples.) (108) Forms DP-10 for the Interest and Dividend Tax can be filed jointly by spouses, but there is nothing in New Hampshire law that requires federal conformity with respect to filing status. (109) The 2011 New Hampshire Interest and Dividends Tax Booklet contains a few sentences noting that New Hampshire civil unions are converted to marriages as of January 1, 2011, but the booklet does not say anything about filing status for people in civil unions or same-sex marriages. (110) Simply discussing same-sex marriages and former civil unions in the instructions, though, we think, implies that parties to same-sex marriages may file joint Interest and Dividends Tax returns.

  3. District of Columbia

    The District of Columbia in 1992 created registered domestic partnerships whose partners could be of the same or different sex, (111) although, because of the United States Congress, which effectively controls various aspects of the governance of the District, the status of registered domestic partner had no significant effect for several years. Effective for 2010, the District allowed the solemnizing of same-sex marriages. (112) The District of Columbia does not require federal conformity between its income tax returns and those of the federal government as to filing status. Further, the District is like a small minority of states (such as Iowa) in allowing the filing not only of joint returns, but also, instead, combined separate returns on a single form. This combined separate return is for the purposes of not having joint liability, but still getting benefits that accrue only to a couple who filed married filing jointly federally. (113)

    Unlike most states that did not specifically amend their laws to mention registered domestic partners or same-sex marriages in their tax codes, in 2007, the District amended its income tax laws to say, "Domestic partners may file either a joint return or separate returns on a combined form prescribed ... as if the federal government recognized the right of domestic partners to file jointly." (114) And in 2010, as part of the adoption of same-sex marriage, the District added the following similar sentence to its income tax laws: "Married same-sex individuals may file either a joint return or separate returns on a combined form prescribed by the Mayor as if the federal government recognized the right of married same-sex individuals to file jointly." (115)

    The District of Columbia Office of Tax and Revenue has not issued any specific guidance to help same-sex married couples and registered domestic partners prepare District income tax returns beyond (1) making a few statements in the instructions to the Form D-40 income tax return and (2) instructing that domestic partners or other similar relationships registered in other jurisdictions and same-sex spouses who are married in other jurisdictions should file jointly or married filing separately on a combined return for tax years beginning in 2009. (116) On the Form D-40, there are filing status boxes that can be checked for "registered domestic partner filing jointly" (and one for filing separately on the same return) and several references to registered domestic partners next to the word "married," such as on Schedule S used to compute taxes when a couple files separately on the same return. (117) Of particular interest, though, is line 12 on the Schedule I, Calculation B, which is used for subtractions from federal adjusted gross income for District purposes. That line entry reads: "Health-care insurance premiums paid by an employer for an employee's registered domestic partner or same sex spouse." (118)

    With respect to filing status for registered domestic partners, the District takes the unusual position of allowing them to file a "joint return" (i.e., equivalent to married filing jointly), separately on the same return, or file as "single." (119) No state allows "single" status for registered domestic partners or civil union members who are permitted to file a "joint return." Same-sex married couples, on the other hand, are told by the District that they may only file either a "joint return" or file separately on the same return. (120) The Office of Tax and Revenue encourages both registered domestic partners and same-sex married couples "to prepare a 'not to be filed' (mock)joint federal return solely to calculate the benefits of filing jointly or married filing separately on the same D-40." (121) There is no requirement that this mock federal return be attached to the D-40 when filed.

  4. New York

    For a number of years, following a state intermediate appellate court decision, New York recognized same-sex marriages performed in other states based on the principle of comity, even though New York did not at that time itself allow same-sex couples to marry in New York. (122) Although in 2008, New York's Governor David Paterson ordered state agencies to give full recognition to valid same-sex marriages...

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