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Louisiana: Joins other states that will not recognize same-sex marriage on state income tax returns

More and more states have been issuing guidance regarding how same-sex marriages will be treated for state income tax purposes in the wake of both the U.S. Supreme Court’s ruling in United States v. Windsor and Revenue Ruling 2013-17 issued by the IRS. In United States v. Windsor, the Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA) on grounds that the federal interpretation of "marriage" and "spouse" applying only to heterosexual unions is unconstitutional under the Due Process Clause of the Fifth Amendment. Revenue Ruling 2013-17 holds in part that 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, shall be recognized for federal tax purposes, even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.

Louisiana joins the group of states that will not recognize same-sex marriage for purposes of determining filing status on Louisiana income tax returns, according to guidance published by the Louisiana Department of Revenue (the Department) on September 13, 2013 in Revenue Information Bulletin No. 13-024 (the Bulletin).

The Louisiana Constitution states that “[m]arriage in the state of Louisiana shall consist only of the union of one man and one woman.” The Bulletin explains the “Louisiana Secretary of Revenue is bound to support and uphold the Constitution and the laws of the state of Louisiana, and any recognition of a same-sex filing status in Louisiana as promulgated in IRS Revenue Ruling 2013-17 would be a clear violation of Louisiana’s Constitution.”

Consequently, the Department will not recognize same-sex marriages when determining filing status on state income tax returns. If a taxpayer’s federal filing status is married filing jointly, married filing separately or qualified widow pursuant to IRS Revenue Ruling 2013-17, then such taxpayer must file a separate state income tax return in Louisiana using a single, head of household or qualifying widow filing status, as applicable. The Bulletin instructs such taxpayers to provide the same federal income tax information on the Louisiana state income tax return that such taxpayer would have provided prior to the issuance of Revenue Ruling 2013-17.

The Multistate Tax Update will continue to follow developments in state tax law in the wake of the U.S. Supreme Court’s ruling in United States v. Windsor and Revenue Ruling 2013-17 issued by the IRS. Such rulings 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 rulings or other developments may affect you or your business, please contact us.

Click here to read Louisiana Revenue Information Bulletin No. 13-024.

California: Legislature punts decision on amount of retroactive tax on QSBS assessments to governor

The California legislature has sent two bills (S.B. 209 and A.B. 1412) to Governor Jerry Brown providing for partial or full legislative fixes for the retroactive tax assessments that may be imposed on as many as 2,500 California investors who benefited from an unconstitutional income tax exclusion from the sale of Qualified Small Business Stock (QSBS) during tax years 2008 and later.

The purpose of the bills is to provide either partial or full relief to California taxpayers who have or will be receiving tax assessments from the Franchise Tax Board if they benefited from the QSBS exclusion, which was struck down by a state appellate court (Cutler v. Franchise Tax Board, 208 Cal. App. 4th 1247 (2012)) in tax years that are still open under the statute of limitations. For a discussion of the state appellate court case and more background on S.B. 209 and the QSBS exclusion, please click here and here to read our prior alerts.

A.B. 1412 would provide a full legislative fix and allow such California investors to exclude up to 50 percent of the gain from the sale of QSBS during tax years 2008 and later, which would eliminate the retroactive QSBS assessments. As originally proposed, S.B. 209 would also have provided for complete relief from QSBS assessments. However, due to a hostile amendment, S.B. 209 now only permits such California investors to exclude up to 38 percent of the gain from the sale of QSBS during tax years 2008 and later, which would mean California taxpayers receiving assessments from the Franchise Tax Board for previously excluded QSBS gain would be required to pay one-fourth of those assessments. A.B. 1412, which was a bill unrelated to S.B. 209, was amended to include full relief from QSBS assessments after lawmakers were unable to gain sufficient support to remove the hostile amendment from S.B. 209.

Both bills relieve taxpayers of the obligation to pay any penalties or interest due to any payments that would be required to be paid due to the Cutler decision, require the Franchise Tax Board to enter into agreements with taxpayers to accept the full payment of such QSBS assessments in installments over a period not to exceed five years, and allow taxpayers an additional 180 days after the bill becomes effective to file any claims for credit or refund related to such act.

Governor Brown has not taken a public position on the bills. He has until October 13, 2013 to decide whether to approve or veto the bills. If both bills are vetoed by Governor Brown, then California taxpayers will receive no relief from retroactive QSBS assessments.

Click here for the full text of S.B. 209.

Click here for the full text of A.B. 1412.

Louisiana: Tax amnesty program begins

As of Monday, September 23, the Louisiana Department of Revenue (the Department) commenced taking applications for its 2013 tax amnesty campaign, which it has coined “Louisiana Tax Amnesty 2013: A Fresh Start.” Louisiana Tax Amnesty 2013 will be available through November 22, making it imperative to act sooner rather than later to take advantage of this program. The amnesty program will also be available in 2014 and 2015, but the timing for those years will be determined at a later time (2013 has the greatest benefits). The Multistate Tax Update previously covered the law enabling this program.

Below is a table illustrating the potential benefits for each year:

Amnesty Program Window

           

Percent of Penalties Waived
                                   

Percent of Interest Waived

September 23, 2013 – November 22, 2013

100%

50%

2014 (dates to be determined)

15%

0%

2015 (dates to be determined)

10%

0%

This program is only available to “qualified” taxpayers and generally provides relief from most taxes administered by the Department, except the following:

  • Motor fuel taxes
  • Prepaid 411 sales tax
  • Oil field restoration (oil)
  • Oil field restoration (gas)
  • Inspection and supervision fee
  • Penalties for failure to submit information reports that are not based on an underpayment of tax (i.e. withholding L-3 penalty)

The official website of the program provides a good basic overview of the program taxpayers should read to educate themselves on the  program. Nonetheless, while amnesty programs can be beneficial to most businesses, there are consequences and risks involved in using any amnesty program – i.e., they are not one size fits all programs. It is also vital to evaluate whether your business and the taxes you owe qualify for the program, among other important considerations. As such, McDonald Hopkins strongly urges taxpayers to seek professional advice before filing an application or communicating with the Department.

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

David M. Kall
216.348.5812
dkall@mcdonaldhopkins.com

Susan Millradt McGlone
216.430.2022
smcglone@mcdonaldhopkins.com

Jeremy J. Schirra
216.348.5444
jschirra@mcdonaldhopkins.com

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.

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