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Rhode Island: Division of Taxation issues tax guidance regarding same-sex marriage law

On September 6, 2013, the Rhode Island Division of Taxation (the “Division”) stated in an Advisory (ADV 2013-20) (the “Advisory”) that same-sex couples married in Rhode Island on or after August 1, 2013, will be recognized as married couples for purposes of Rhode Island income tax. This guidance is in response to the legislation that was approved by the General Assembly and signed into law by Governor Lincoln D. Chafee on May 2, 2013, which generally allows couples to marry regardless of gender.

The Advisory explains that if a same-sex couple is married as of the last day of the calendar year and the marriage meets Rhode Island’s statutory requirements, then such same-sex married couple will be able to claim a “married filing jointly” filing status on their Rhode Island personal income tax returns for 2013 and subsequent tax years.

The Division also issued a 15 page frequently asked questions sheet providing additional guidance on questions that may arise as a result of this new law, including such topics as:

  • The filing status that a same-sex couple must use;
  • Matters related to filing amended tax returns to claim a married filing status if such same-sex couple was previously married in another state;
  • How employee benefits provided to a same-sex spouse will be treated for income tax purposes; and
  • The manner in which a same-sex married couple should calculate their Rhode Island tax return.

The Rhode Island Tax Administrator, David M. Sullivan, stated in the Advisory that as a result of this new law, “effective August 1, 2013, from a Rhode Island tax perspective, same-sex married couples will have the same rights – and responsibilities – that formerly applied only to opposite-sex married couples.”

Click here to read ADV 2013-20.

Click here to read “Same-sex marriage and taxes: Frequently asked questions (FAQ)” issued by the Division.

Pennsylvania: New inheritance tax exemption may be of benefit to family business owners

Under a recently enacted Pennsylvania law, H.B. 465, certain family-owned businesses will no longer be subject to an up to a 15 percent inheritance tax occurring on the death of a family member. This is provided that certain qualifications are met. As such, family-owned businesses with the potential to qualify should plan ahead in order to benefit from this law.

To be a “qualified family-owned business”, the business must generally meet certain conditions, including:

  • The decedent holds his or her interest as the proprietor in a trade or business carried on as a proprietorship,
  • The proprietorship has fewer than 50 full-time equivalent employees as of the date of the decedent's death,
  • The proprietorship has a net book value of assets totaling less than $5 million as of the date of the decedent's death, and
  • The proprietorship has been in existence for five years prior to the date of the decedent's death.

If your business is not in the form of a proprietorship, not to worry – your family-owned business may still be eligible. If your business generally meets the criteria indicated above and, as of the date of decedent's death, the entity is wholly owned by the decedent or by the decedent and members of the decedent's family that meet the definition of a qualified transferee (discussed further below), among a few other criteria, you may qualify.

Only a narrow set of “qualified transferees” qualify for the exemption provided and that qualification is entirely dependent on the transferee’s relationship to the decedent. Qualified transferees must be one of the following in relation to the decedent:

  • Husband or wife; 
  • Lineal descendants; 
  • Siblings or the sibling's lineal descendants; or 
  • Ancestors or the ancestor's siblings.

Potential pitfalls

The transferee must own the interest in the family-owned business for seven years after the date of the decedent’s death and report the interest on a timely-filed inheritance tax return. If the transferee does not own the interest at any time during the initial seven years, the transferee then becomes responsible for paying inheritance taxes on the value of the interest. The owner of the exempt interest must also certify to the state that he or she still owns the interest each year for the first seven years.

Additionally, a decedent that transfers property to the family-owned business in anticipation of death may find that the property transferred to the business is still subject to inheritance tax. The law includes a clawback provision whereby property transferred by the decedent into his or her family-owned business within a year of his or her death is subject to inheritance tax. However, there is an exception for transfers of property for a legitimate business purpose.

The Multistate Tax Update more broadly covered other changes to Pennsylvania tax law under H.B. 465 in a previous issue.

Click here for the full text of H.B. 465.

Ohio: September sees increase in state sales tax

As previously covered in the Multistate Tax Update, state sale taxes were set to increase by .25 percent as of September 1 by way of passing the state’s budget bill earlier this year. Now that September is here, the sales tax increase is in full effect. Another sales tax change that will not be seen until the beginning of next year is the expansion of the sales tax base to include specified digital products provided for permanent or less than permanent use.

The primary rationale behind this increase in sales tax was to offset various income tax reductions provided to Ohioans under the budget bill. This tax continues to receive some debate using the usual proportionate versus progressive tax rationales. Additionally, individual income tax rates will gradually be reduced each year through 2015.

A broader overview of Ohio’s budget bill was covered in the prior Multistate Tax Update mentioned above.

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.