The Virginia Department of Taxation, after consulting with Attorney General Ken Cuccinelli II’s office, has ruled that the state will not conform to the U.S. Internal Revenue Service’s new tax treatment of same-sex married couples because state law and a state constitutional amendment prohibit recognition of gay marriage.
As a result, gay couples must now file their federal tax returns as married couples — either jointly or separately — but will have to file Virginia tax returns as single individuals.
In a bulletin issued Nov. 8, the Department of Taxation noted that the decision could have an impact on deductions, exemptions and tax credits for low-income taxpayers. Businesses, too, could face additional hassles — and expense.
“In terms of the tax issue, Virginia’s got you coming and going as a same-sex couple,” said the Rev. Robin H. Gorsline, president of People of Faith for Equality in Virginia. “You can’t win.”
The ACLU of Virginia saw the decision as reaffirmation of the state’s “ongoing hostility toward lesbian, gay, bisexual and transgender Virginians, including legally married same-sex couples.”
Claire Guthrie Gastañaga, ACLU executive director, said in an interview that civil rights groups hope to persuade Gov.-elect Terry McAuliffe to follow the lead of Missouri Gov. Jay Nixon (D), who signed an executive order allowing same-sex couples who were legally married in other states to file joint tax returns with the state. Like Virginia, Missouri has a constitutional ban on recognizing same-sex marriages.
McAuliffe’s transition team is aware of the issue and is studying it but has not reached a formal conclusion, a spokesman said.
But it could be trickier for McAuliffe than it was for Nixon. Virginia’s constitutional ban on gay marriage is more detailed than Missouri’s, specifically proscribing governments from assigning “rights, benefits, obligations, qualities, or effects of marriage” to any unions not between one man and one woman.
Gay rights groups are aware of the legal challenges.
“I think we’ll certainly have conversations with Governor McAuliffe’s office to change this for gay couples. But it is very difficult to get around these constitutional amendments,” said Brian Moulton, legal director for Human Rights Campaign, a Washington, D.C.-based nonprofit organization that promotes gay rights.
Virginia tax officials and opponents of gay marriage say the tax ruling is simply about obeying law enshrined in the state’s constitution after a multistep process that won voters’ approval 57 percent to 43 percent in 2006.
“It’s not a tax issue. It’s a constitutional matter,” Taxation Department spokesman Joel Davison said. “An administrator can’t go against his or her state constitution.”
The Tax Department based its ruling on advice from Cuccinelli’s office about the impact of this year’s U.S. Supreme Court decision in U.S. v. Windsor
, which held that same-sex married couples are entitled to equal treatment under federal law. On Sept. 16, the IRS issued a ruling saying that same-sex couples will be treated as married couples for federal tax purposes if they were legally married in a state that recognizes same-sex marriage, regardless of whether they live in a state that recognizes such marriages.
Virginia declined to go along with federal tax law, as it has since 1972. On Nov. 7, Elizabeth B. Myers, and assistant attorney general, wrote an opinion noting that Windsor struck down a federal Defense of Marriage Act provision because the federal government had unfairly applied the estate tax to the surviving spouse of a same-sex couple. But the court also left untouched a provision that allows states to refuse to recognize same-sex marriages performed under the laws of other states.
Victoria Cobb, president of the Family Foundation of Virginia, which promotes socially conservative values, applauded the tax ruling.
“We appreciate the department and administration putting the rule of law ahead of simplicity,” Cobb said in a written statement.
Among other obstacles, the tax ruling in Virginia means couples must create artificial federal returns just to recalculate the state tax.
But Gastañaga and other civil rights advocates warn that the ruling will burden businesses, too.
Corporations that offer employee benefits such as health insurance can receive tax deductions on those contributions, declaring them business expenses. Employers can also take deductions for providing benefits to an employee’s spouse.
Before Windsor and the IRS’s ruling on same-sex couples, those federal tax deductions applied only to heterosexual married couples. Now, they apply to same-sex marriages, too. Yet Virginia may still tax benefits to same-sex couples because the state does not legally recognize their marriages. The Tax Department, in its bulletin, advised businesses to “adjust the deductions they claim for Virginia income tax purposes accordingly.”
“It really complicates things when you’ve got two different laws at the state level and the federal level and you have to think about all these things,” said Roberton Williams, an economist with the Tax Policy Center, which is a joint venture of the Urban Institute and Brookings Institution.
Such financial considerations have played a part in decisions among gay couples about how to handle their taxes and, at least in Gorsline’s case, even whether to marry.
Gorsline said he and his partner of 16 years, Jonathan Lebolt, 54, have considered marrying in a state that recognizes gay marriages, such as New York. But they decided not to, in part because they would be hit with the “marriage tax penalty,” just like some heterosexual couples. The penalty is a wrinkle in tax law that leads to some married couples paying more income tax than two single people with the same income.
“It was actually going to cost us money to go get married and file jointly,” Gorsline said.
Gorsline said Virginia’s recent tax ruling is a double whammy for same-sex couples: Some might encounter the marriage penalty on their taxes, even as they are dealing with the extra complications of filing as individuals for the state.
“Our first thought, the thing that matters the most to us, is that we’re treated equally,” said Marc Purintun, 51, a lawyer specializing in employment benefits who lives in Richmond. He said he and his spouse, Van Baskins, 51, don’t mind that they are likely to be hit with the marriage penalty.
“If my brother has to file jointly and pay more in taxes because he’s married, why shouldn’t I?” said Purintun, who married his husband in California in 2008. “And so as a citizen, I’m happy to pay the taxes when I’m being treated equally. What’s frustrating is for Virginia to carve out one small group of people — legally married same-sex couples — and say our tax policy applies equally to everybody but you.”