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Wisconsin: State department of revenue issues guidance for same-sex couples, lawsuits likely to follow

The Wisconsin Department of Revenue (the “Department”) recently issued guidance indicating that same-sex married couples may not file jointly and must file separate income tax returns. In addition, same-sex married couples will be required to file a new form, Schedule S. While many may view the Department’s guidance in a negative light, it is likely that the Department has its hands tied until either political, legislative or judicial action (or some combination thereof) unties them. Lawsuits are likely to ensue following the announcement of the Department’s guidance.

The guidance summarized the Department’s position as follows:

Wisconsin does not recognize a same-sex marriage. Section 71.03(2)(d), Wis. Stats., provides that a husband and wife may file a joint return for income tax purposes. Individuals who entered into a same-sex marriage in another state cannot file a Wisconsin income tax return using a tax status of married filing jointly or married filing separately.

In Wisconsin, for same-sex spouses who are considered married for federal tax purposes, each individual must file an income tax return (Form 1 or Form 1NPR) using the filing status of single or, if qualified, head of household. Additionally, same-sex married couples must each individually file a new form, Schedule S – “Allocation of Income to be Reported by Same-Sex Couples Filing a Joint Federal Return.” Schedule S shows the amount of income reported on the federal return allocable to each individual and determines the federal adjusted gross income to be used for Wisconsin tax purposes. Note that the guidance indicates that state marital property law does not apply to this allocation.

For 2012 and prior tax years, same-sex couples who have filed their federal returns individually may choose (but are not required) to amend their federal returns to file using a filing status of married filing jointly or married filing separately (assuming the statute of limitations has not passed). For such same-sex couples who are married for federal tax purposes, their 2013 federal returns can be filed using a filing status of married filing jointly or married filing separately.

Amended state returns must be filed on paper and not e-filed, including a copy of the federal return and Schedule S. The Department’s guidance applies to: 

  • 2012 returns filed on or after September 16, 2013;
  • Late returns from prior years filed on or after September 16, 2013; and
  • Returns filed for tax year 2013 and forward.

The Multistate Tax Update will continue to follow developments in state tax law in the wake of the Court’s ruling in United States v. Windsor (striking down Section 3 of the Defense of Marriage Act (“DOMA”) on grounds that the federal interpretation of "marriage" and "spouse" to apply only to heterosexual unions is unconstitutional under the Due Process Clause of the Fifth Amendment), as well as Revenue Ruling 2013-17 (holding, in part, that: (1) “husband” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes such a marriage; and (2) a marriage of same-sex individuals that was validly entered into in a state whose law authorizes the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages). These holdings have only begun their ripple effect throughout the United States at both the federal and state level. To be sure, a multitude of state legislation, rulings, guidance, and litigation will ensue as a result. If you have questions on how these holdings or other developments may affect you or your business, please contact us. 
Click here to read the Wisconsin Department of Revenue’s “Tax Guidance for Individuals in a Same-Sex Marriage.”

Massachusetts: The tech strikes back – state won’t collect software sales tax pending appeal

In an update issued by the Massachusetts Department of Revenue (“DOR”) Monday, September 16, 2013, Tax Commissioner Amy Pitter announced: 

[T]he Department of Revenue (DOR) is extending by one month the deadline for vendors to file returns reporting sales and use taxes collected under a new law taxing certain computer and software services. The first reporting deadline will now be October 20, 2013.

‘In light of public statements from the Governor and legislative leaders voicing support for repealing these particular taxes, we want to minimize the administrative burden on businesses that are complying with the law and collecting sales taxes on their services,’ said Commissioner Pitter. ‘We are delaying the deadline until October for reporting and paying the taxes they may have been billing and collecting since the law went into effect July 31st.’ 

The Multistate Tax Update previously covered the new so-called “software sales tax” or “tech tax” that was recently enacted in Massachusetts:

Click here to view the Multistate Tax Update on August 8, 2013.

Click here to view the Multistate Tax Update on September 5, 2013.

The tech tax effectively broadened the sales tax base by taxing certain computer and software services. Without this delay, the first tech tax return and payment would be due Friday, September 20, 2013. The first return and payment is now due on Monday, October 21, 2013.

Please note that this filing extension does not apply to returns and payments with respect to any other sales or use taxes.

In recent days, repeal of the tech tax law has garnered increasing legislative support and the support of Governor Deval Patrick. Technology companies that provided services subject to this tax have expressed great concern over the administrative burdens with compliance and also overall confusion as to what services are subject to the new tax and which services are excluded. Based on the backlash, it appears likely (but clearly not certain) that the law will be repealed. However, if this law is repealed, there will likely be another legislative change on the horizon to shore up the loss of revenue (although some legislators have said no new tax would be proposed in lieu of the tech tax).

The DOR issued guidance on the delay procedures under a new TIR 13-14: Extension of Due Date for First Reporting of Sales and Use Tax on Computer and Software Services.

Click here to read the complete text of H. 3535, which includes the tech tax.

South Carolina: Private Letter Ruling says services performed by independent contractors are to be used in state apportionment calculation

The South Carolina Department of Revenue (the “Department”) issued Private Letter Ruling #13-3 (PLR). In the PLR, the Department answered two inquires: 

  • How is the income of the taxpayer apportioned for South Carolina income taxes?
  • Are services performed by independent contractors in South Carolina for the taxpayer used in determining what gross receipts are sourced to South Carolina?

The taxpayer in this case had 15 employees, one of whom lived in South Carolina and worked out of his home. Additionally, the taxpayer hired independent contractors who perform services in South Carolina and other states.

The Department reasoned, in part relying on Lockwood Greene Engineers, Inc. v. South Carolina Tax Commission, 293 S.C. 447, 361 S.E.2d 346 (1987) (note that this case only dealt with the taxpayer’s employees and did not include independent contractors), that where services are provided both in state and out of state, gross receipts are attributable to the state to the extent the income-producing activity is performed in the state. The Department reasoned that there is no meaningful distinction between a taxpayer’s employees and its independent contractors for a taxpayer who provides personal services. It should be noted that the taxpayers in both Lockwood Green and the PLR were engaged in providing engineering services.

In addressing the questions enumerated above, the Department concluded that: (a) the taxpayer must apportion its income using gross receipts based on where the engineering services are performed; and (b) the services performed in South Carolina by independent contractors, as well as the taxpayer’s employees should be considered in determining the taxpayer’s gross receipts sourced to South Carolina for apportionment purposes.

Note that Private Letter Rulings are an advisory opinion issued to a specific taxpayer. As such, this PLR is binding on the Department only with respect to the taxpayer to whom it was directed. However, Private Letter Rulings are generally viewed as persuasive evidence as to the position the Department will take given similar facts and circumstances. 
Click here to read SC PLR 13-3. 

For additional information regarding these subjects or any other multistate tax issues, please contact:

David M. Kall

Susan Millradt McGlone

Jeremy J. Schirra

Businesses must be vigilant and careful in managing their state and local tax liabilities and exposures. We understand this can be a daunting task. McDonald Hopkins Multistate Tax Services provides a broad range of state and local tax services including tax controversy, tax evaluation, tax planning, and tax policy. With professionals who have worked both inside and outside government agencies, our multistate tax team leverages its knowledge and experience to help clients control their complex multistate taxes.