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Hollingsworth v. Perry: California Same-Sex Marriage Case Will Have Tax Implications As Well

I am sure many people, myself included, have seen the movements on the airwaves and social media discussing the same-sex marriage case out of California. From constant coverage online and on news stations, to many changing their Facebook default picture, the California same-sex marriage case has grabbed the national spotlight over the last few months in 2013. Unaware of exactly what was unfolding, I have attempted to become apprised of the situation in California. Although the ruling will likely have little value for a tax attorney in South Florida, it is interesting from a constitutional and tax law perspective.
By way of background, the status of same-sex marriage is unique in California because the state granted same-sex marriage licenses to couples in June, 2008. The same year in November, Proposition 8 ended same-sex marriages within California. Upset by the state constitutional amendment, a group took the issue to federal court to challenge the constitutionality of Proposition 8 and won on August 4, 2010 (See Perry v. Schwarzenegger). The case was appealed to the 9th Circuit Court of Appeals.

On July 31, 2012, Judges Reinhardt and Smith delivered the opinion of the 9th Circuit. Specifically, California enacted Proposition 8 which stripped the couples of the right to have their relationships recognized by the state as a “marriage.” Conversely, same-sex couples had all other rights and responsibilities, but California classified them as “domestic partners.” The challengers argued that the amendment violated the Fourteenth Amendment of the U.S. Constitution.

Unbundling the case further, the amendment was challenged because it deprived same-sex couples the right to marry, which is a fundamental right guaranteed under the Due Process Clause of the Constitution. Moreover, the petitioners alleged that Proposition 8 violated the Equal Protection Clause of the Constitution because it treated same-sex couples different than opposite sex couples.

In a thorough and lengthy opinion, the 9th Circuit looked to Evans v. Romer, 854 P.2d 1270, a Colorado Supreme Court case that struck down a similar amendment in Colorado. In Romer, the court looked to whether the state had a “legitimate interest” in enacting a law that perpetuates discrimination of an unusual character. Despite sparking the age old debate as to what extent a state should impede on private citizen’s lives, California argued the law was enacted because it 1) furthered its interest in childrearing and responsible procreation, 2) proceeded with caution before making significant changes to marriage, 3) protected religious freedom, and 4) prevented children from being taught about same-sex marriages in schools. Ultimately, the court held that the amendment violated the Equal Protection Clause of the US Constitution because the law was enacted with “animosity toward . . . or disapproval of ‘the class of persons affected.'” For those of you interested in reading an interesting opinion from a legal perspective, the opinion can be found here:

As it has been amply publicized, the Supreme Court granted certiorari on December 7, 2012, and arguments were heard in March, 2013. It will be interesting to see how our Supreme Court handles this case. On one hand, it has an opportunity to show support for or disavow same-sex marriage, and on the other, it addresses an issue that has been traditionally left for the individual states to decide.

Putting my tax hat back on, the case will have significant relevance in the tax world for states that allow for same-sex marriages. There are many incentives in the Tax Code that encourage marriage. For example, couples that file joint returns can take advantage of the standard deduction of $11,900, the personal dependency exemptions of $3,800 each, personal exemptions of $3,800 per child, up to $10,000 a year for IRA’s, and $500,000 of exemption for personal residence sales. There are estate and gift tax savings that effectively allows a married couple to have annual gift tax exemptions of $26,000 (vs. 13,000) and lifetime exemptions with portability of $10.24 million (vs. $5.12).

However, as the law stands now, the Federal Defense of Marriage Act of 1996 defines a marriage as a “legal union between one man and one woman as husband and wife.” As such, the IRS does not currently allow for same sex marriages to file jointly. Could this be challenged on constitutional grounds if the Perry case is upheld? Conversely, states like California allow for “domestic partners” to file jointly. Maryland issued a Statement in the beginning of 2013 which allows same-sex married couples to file jointly. How will this ruling affect states with personal income taxes?

In sum, this issue seems ripe for debate in the coming months. The outcome of Perry may have significant impacts in the tax world and how the federal and state taxing agencies view same-sex marriage. More importantly, the case will have profound implications in the constitutional law arena, and I look forward to participating in the debates regardless of the case’s outcome.

About the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email or phone listed on this page.

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