Last year, The Supreme Court ruled in United States v. Windsor that same-sex married couples could be treated as married under federal law. This had broad implications for US federal taxes for same-sex married couples, but at the state level the laws continued to vary state by state. When the IRS issued its guidance, they clarified that for tax purposes the IRS would recognize any marriage entered into legally in a state that allowed the marriage, regardless of current residence.
In states like Maryland or the District of Columbia, which allowed same-sex marriages to be performed in the state and also recognized same-sex marriages entered into legally in other states, the federal tax law and state tax law were now in parity. States that had not yet recognized same-sex marriage, however, like Virginia, were left to their own to determine how to treat same-sex couples residing in their state, even if they were legally married elsewhere. Virginia initially ruled that it would not recognize the marriages, and couples would have to file separate state tax returns, even if they filed a joint federal tax return.
On October 6, 2014, the US Supreme Court declined to weigh in on a case (Bostic v. Schaefer) challenging Virginia’s ban on same-sex marriage. The US District Court and Circuit Court of Appeals had both ruled the ban unconstitutional, and when the Supreme Court refused to hear the case, the decisions that held the ban on same-sex marriage unconstitutional were upheld.
As a result, a day later the Virginia Department of Taxation issued Tax Bulletin 14-7 clarifying that Virginia would now recognize, for state income tax purposes, a same-sex marriage that is recognized for federal income tax purposes. Similar to the IRS guidance, a same-sex married couple who filed a joint federal tax return can choose to (but is not required to) amend previously filed returns within the three-year statute of limitations.
The state income tax landscape continues to evolve quickly on this issue, but for now Maryland, DC and Virginia (among other states) are all in agreement with the federal tax treatment of same-sex marriage. If you have any questions, please contact us or consult with your tax advisor. Stay tuned for more updates as this issue evolves.
The U.S. Supreme Court has agreed to hear the case of Md. Comptroller of Treasury v. Wynne, (U.S., No. 13-485, cert. granted, 5/27/14) on whether a taxpayer’s resident municipality can tax all of a resident's income or if it must provide a credit for taxes that person paid to other states. This case specifically addresses Maryland’s denial of credits against the MD county income tax; full details are available in our previous post on this case.
On July 30, 2013, District of Columbia Mayor Vincent Gray signed the “Fiscal Year 2014 Budget Support Emergency Act of 2013.” Part of this legislation, the Out-of-State Municipal Bond Tax Repeal Emergency Act of 2013, repeals the 2011 law which required interest income from out-of-state municipal bonds acquired after January 1, 2013 to be included in determining DC taxable income for individuals, estates, and trusts.
In July of 2013, North Carolina adopted N.C. Gen. Stat. § 105-164.4(a)(11), which imposes the 4.75% general State and applicable local and transit rates of sales and use tax “to the sales price of a service contract” sold by a retailer on or after January 1, 2014 and sourced to this State.
On Friday, May 17, 2013, the Maryland Court of Appeals denied the comptroller’s motion for reconsideration in Brian and Karen Wynne, et al v. Comptroller of Treasury. The original ruling was in favor of the taxpayer, allowing taxes paid to another state to count as a tax credit against the income taxes paid to a Maryland County.
The ruling is still standing in favor of the taxpayer, although the effective date is on hold, allowing Maryland time to petition the U.S. Supreme Court.
Stay tuned for additional guidance from Maryland and for more updates on this court case. For more information on how this may affect your tax return, view our previous post.