Virginia Married Gay Couples Face Tax Dilemma

Dec 12th 2013
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By Teresa Ambord, Correspondent

The state of Virginia doesn't recognize gay marriage as legal. That's not unusual, since less than one-third of states have legalized same-sex marriage. In Virginia, it's also against state law and part of the state's constitution to not recognize these marriages performed in other states. The constitution bans the assigning "of rights, benefits, obligations, qualities, or effects of marriage" to unions which are not between a man and a woman. 

What does this mean for taxes? According to the Virginia Department of Taxation, it means the department cannot legally allow same-sex married couples who are residents of Virginia to file their state tax returns using the married/joint status. 

"It's not a tax issue. It's a constitutional matter", said Joel Davison, a spokesman for department. "An administrator can't go against his or her state constitution." It's significant to note, the constitution was voter-approved by 57 percent. 

What the Critics Say

In spite of the fact that employees of the tax department must follow the law, Salon magazine accuses the state of bad behavior. "Virginia is going to make filing taxes an even bigger pain for married gay couples in the state by requiring them to file state taxes as single individuals, even if they are jointly filing their federal tax returns. The Virginia Department of Taxation made the decision to continue its discrimination against gay couples."

The American Civil Liberties Union (ACLU) of Virginia says this is "ongoing hostility toward lesbian, gay, bisexual, and transgender Virginians, including legally married same-sex couples", according to a report in the Washington Post. They maintain Virginia's Department of Taxation, in consultation with Attorney General of Virginia Ken Cuccinelli II, will not conform to Supreme Court's decision in the United States v. Windsor

Windsor says same-sex couples are entitled to equal treatment under federal law. On August 30, the IRS said these couples will be treated as married for federal tax purposes, if they were legally married in states which recognize same sex marriage, even if they live in a state which doesn't recognize this type of marriage. 

The ACLU hopes to corner governor-elect Terry McAuliffe to get him on their side to defeat Virginia's law, once he takes office, according to the Washington Post. They point to the example of Missouri's Governor Jay Nixon who overrode his state's constitutional ban on recognizing same-sex marriage. The Washington Post admits, however, the issue in Virginia is not quite as simple as in Missouri. The Virginia constitution is more detailed, specifically prohibiting the action the ACLU is demanding. So far, McAuliffe's office hasn't communicated its intentions in this matter. 

How Are Virginia Individuals and Businesses Affected?

To begin with, same-sex couples who are legally married and reside in Virginia may file their tax returns using the married joint status for their federal return, according to Windsor. But for their state returns, they must still file as single. This could mean they will also have to create a dummy federal return as single in order to calculate their state returns. 

On November 8, the state's Department of Taxation issued a bulletin notifying Virginians this position could impact deductions, exemptions, tax credits for low-income taxpayers, and businesses, said the Washington Post

The Washington Post interviewed couples directly affected by Virginia's law, and their opinions seemed mixed. Some said, because of the complications of Virginia state tax returns, they have decided not to marry. One couple said they would remain single because marriage would mean paying a marriage penalty, the same way some heterosexual couples are affected. Another Virginia couple said paying more didn't matter to them. ". . . 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."

As for businesses, they will face some challenges when it comes to benefit taxation. Those who offer benefits to employees and their spouses and then take deductions for those benefits as business expenses will have a more complex accounting process. Prior to Windsor and the IRS ruling, these deductions were only for heterosexual couples, so there was no question. While the federal government will not tax the benefits to employees, the state of Virginia will. In its bulletin, the Virginia Department of Taxation advises 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 nonpartisan joint venture of the Urban Institute and the Brookings Institution.

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