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Alaska: State supreme court rules in favor of property tax exemption for same-sex couples

Last month, the Supreme Court of Alaska issued an opinion in a case in which three same-sex couples claimed that a state and municipal property tax exemption violated their equal protection rights under the Alaska Constitution. The case was State v. Schmidt, --- P.3d ---, 2014 WL 1663367 (Alaska 2014). In Schmidt, the couples claimed that their rights were violated because they could not benefit or become eligible to benefit from the exemption program to the same extent as heterosexual couples who are married or may marry. Therefore, the couples argued, the exemption program has the potential to treat same-sex couples less favorably than it treats opposite-sex couples even though the two classes are similarly situated.


Under Alaska and Anchorage law, the owner of a residence who is a senior citizen or a disabled veteran may apply for a municipal property tax exemption exempting $150,000 of the assessed value of their residence from the tax. However, the full value of the exemption is potentially unavailable if a person who is not the recipient’s spouse also occupies the residence. In the case where another person occupies the residence who is not the recipient’s spouse, the exemption applies to only the portion of the residence that is permanently occupied by the eligible person.

Three couples joined in the case in Schmidt. In the case of two of the same-sex couples, the couples each owned their homes as tenants in common, and each individual in the respective couple had a 50 percent ownership interest in the residence. In one of these couples, one person was 67 years old and the other was 62 years old. In order to be eligible to apply for the tax exemption based on age, one must be at least 65 years old. In the other couple, one member of the couple was a disabled veteran who served in the US Air Force for 20 years and was injured in the line of duty. This member qualified for the exemption as a “disabled veteran.”

The third couple did not formally co-own their home. One member of the couple was 69 years old and the other member, the sole legal owner of the couple’s residence, was 62 years old.

Applicable law

Article I, Section 1 of the Alaska Constitution provides, in part: “[t]his constitution is dedicated to the principles that...all persons are equal and entitled to equal rights, opportunities, and protection under the law...” This passage is referred to as the equal protection clause.

In 1998, Alaska voters adopted the Marriage Amendment, Article I, Section 1 of its constitution. This amendment provides: “[t]o be valid or recognized in this State, a marriage may exist only between one man and one woman.” This amendment, like similar amendments in other states, precludes same-sex couples from marrying in the state or having their out-of-state marriages recognized in the state.

Alaska Supreme Court’s analysis

In an equal protection claim, the plaintiff must show that either a facially neutral state action has a discriminatory purpose or that the state action is facially discriminatory. When a law by its own terms classifies persons for different treatment, the law is deemed facially discriminatory. Additionally, plaintiffs asserting equal protection violations must demonstrate that the challenged law treats similarly situated persons differently.

The court first found that the relevant classes to compare were same-sex couples who wish to marry and opposite-sex couples who wish to marry, not married couples and unmarried couples (without regard to sexual preference). Thus, the court sided with the same-sex couples’ argument as to who is similarly situated. The court also cited to precedent that the Marriage Amendment did not explicitly permit public employers to engage in practices that potentially violated the equal protection clause. Essentially, if the Marriage Amendment did not address the benefits at issue, the court held that it did not foreclose plaintiffs’ equal protection claims. See Alaska Civil Liberties Union v. State, 122 P.3d 781 (Alaska 2005).

In analyzing the exemption law with the state constitution, the court found that the Marriage Amendment “does not explicitly or implicitly prohibit the State from offering the same property tax exemption to an eligible applicant who has a same-sex domestic partner that the State offers to an eligible applicant who has a spouse.” It should be noted that the couples in this case did not claim that the Marriage Amendment violates Alaska’s equal protection clause or that they have a right to marry.

In addition, the court made two conclusions with respect to the equal protection clause and the Marriage Amendment: “(1) [s]ame-sex couples cannot marry or have their marriages recognized in Alaska, and (2) because they cannot marry, same-sex couples cannot obtain the benefits of the tax exemption to the same extent as married couples.” The court then held that the same-sex couples must prove that they treat same-sex and opposite-sex couples differently in order to prevail on their equal protection claim. With respect to the first two couples, the court found that the couples carried their burden (i.e., that same-sex and opposite-sex couples were treated differently) and that such couples’ equal protection rights were violated.

However, with respect to the couple where the ownership of their residence was not in common and the person ineligible for the tax exemption was the sole owner of the residence, the court found that the couple’s equal protection rights were not violated and that they were not entitled to the tax exemption. As the court reasoned, the tax exemption exempts $150,000 of assessed value of a “property owned and occupied as the primary residence and permanent place of abode by a [senior citizen or disabled veteran].” (Emphasis added.) Thus, the court reasoned, some ownership interest by the eligible applicant is necessary in order to be able to take the exemption, whether the individual is a member of a same-sex couple or otherwise. In the third couple’s case, the would-be eligible applicant had no property interest in the residence. As a result, the third couple was not successful in their claim.

Follow-on lawsuit filed

A separate lawsuit was filed on Monday, May 12, 2014 that challenges the constitutionality of Alaska’s constitutional amendment prohibiting same-sex marriage. As noted above, a challenge of this sort was not raised in Schmidt. While a ruling in a court in Alaska certainly does not change the law of other states, it does influence future rulings by other states and even potentially the U.S. Supreme Court. A ruling on such an issue has potential to have a great impact on the treatment of same-sex couples both within and outside the tax arena.

Northern California: Cities address transient occupancy tax on Airbnb home vacation rentals

Within the last month, both Berkeley and San Francisco have addressed issues related to the application of a transient occupancy tax, commonly referred to as a “hotel tax,” on rentals made through home hosting sites such as Airbnb, HomeAway Inc., and Vacation Rentals by Owner. For those unfamiliar with these hosting sites, permanent residents of various properties (homeowners and lease tenants alike) provide their homes for rental to tourists and visitors for periods where the permanent residents would be away from their homes or have a spare room for rent. The sites charge a small fee and the residents collect the rental payments.


As of May 1, 2014, Airbnb had over 1,000 residence listings in Berkeley, while Vacation Rentals by Owner and HomeAway Inc. each had 117 and 125 respectively. On April 29, 2014, Berkeley’s city council voted to have the city manager draft a policy which would require the hosting site companies to pay the transient occupancy tax, which is currently set at 12 percent for rental periods less than 30 days. Furthermore, Berkeley’s 2014-15 budget projects a two percent increase in the transient occupancy tax collections from fiscal year 2014 to fiscal year 2016. However, this projection could greatly increase if Airbnb and other hosting sites begin collecting such transient occupancy tax.

Berkeley’s city council is recommending that Airbnb follow the lead of other cities in requesting that Airbnb voluntarily collect and remit transient occupancy taxes in Berkeley. Airbnb has stated that it will begin a pilot program in June to voluntarily collect and remit transient occupancy taxes in San Francisco, New York City, and Portland, Oregon. In fact, New York City was among the first cities to challenge the legality of these hosting site arrangements, as previously covered in the April 24, 2014 edition of the Multistate Tax Update.

San Francisco

On April 15, 2014, San Francisco introduced legislation which provides for exceptions in its current housing law to allow residents to offer their primary residences as short-term residential rentals and utilize hosting sites like Airbnb. The legislation proposal provides that the permanent residents must comply with certain requirements in order for them to be permitted to offer their primary residence as a short-term residential rental. These requirements include, among others, the following:

  1. Occupying the unit themselves for no less than 275 days per year;

  2. Maintaining records for two years illustrating their compliance with the law;

  3. Collecting and remitting transient occupancy taxes;

  4. Maintaining homeowner’s or renter’s insurance coverage for at least $150,000 in damage per incident, or ensuring that the hosting site provides for this insurance coverage;

  5. Registering and maintaining registration on the Short-Term Residential Rental Registry before offering their unit for use as a short-term residential rental; and

  6. If the unit is subject to rent control, charging rent that is not higher than the rent the primary resident pays to his landlord per month.

However, the proposal clarifies that the proposed exception to permit short-term residential rentals does not confer a right to lease, sublease, or otherwise offer a residence for short-term residential rental if such use is not otherwise allowed by law, a homeowners association agreement or requirements, a rental agreement, or any other applicable restriction, requirement, or enforceable agreement.

The proposed legislation provides that if owners are found to have violated the terms of the law for short-term residential rentals, then they can be subject to various penalties, including: $1,000 per rental day not in compliance with the law, misdemeanor offense punishable by a $1,000 fine and/or up to a six-month prison sentence, or a one-year prohibition from listing the residence on any housing platform site.

The proposed legislation includes a requirement that the housing platform sites provide notice to the residents providing the rentals of the applicable laws and their obligation to collect and remit the transient occupancy taxes.

The proposal is currently being reviewed by the San Francisco Board of Supervisors Land Use and Economic Development Committee.

Pennsylvania: Governor signs law clarifying when local taxing authorities may impose a business privilege tax

The State of Pennsylvania has enacted legislation clarifying the application of the business privilege tax imposed by local taxing authorities. The new law (H.B. 1513) was signed by Governor Tom Corbett on May 6, 2014 and applies to tax years beginning on or after Jan. 1, 2014. This law resolves the uncertainty in the application of the business privilege tax that arose out of a 2007 decision by the Pennsylvania Supreme Court.

Under the Local Tax Enabling Act (LTEA), in certain situations, local taxing authorities can assess business privilege taxes on companies that generate revenue within their borders. Prior to 2007, Pennsylvania courts took the position that in order for a local taxing authority to impose a business privilege tax, that business must maintain a permanent base of operations within the local taxing authority. In 2007, however, the Pennsylvania Supreme Court in Rendina Inc. v. City of Harrisburg held that the LTEA did not require businesses to have these permanent bases of operations before a local taxing authority could assess business privilege taxes.

Business owners around the state expressed their displeasure at the ruling, protesting the ambiguities it created and the instances of multiple taxations that resulted. The state passed H.B. 1513 to help resolve some of this confusion and to mitigate the multiple taxation issues.

H.B. 1513 provides that in order for a business privilege tax to be imposed, the business must either: (1) conduct transactions within the levying local taxing authority’s jurisdiction for all or part of 15 or more calendar days per year; or (2) the business must maintain a base of operations in the jurisdiction of the levying local taxing authority. The new law defines a base of operations as “an actual, physical and permanent place of business from which a taxpayer manages, directs and controls its business activities at that location.”

Additionally, the new law allows taxpayers to exclude any gross receipts that are subject to a business privilege tax in local taxing authorities in which work was done for 15 or more days from the gross receipts used to calculate the business privilege tax owed in the local taxing jurisdiction where its base of operations is located. This exclusion will help offset the multiple taxation problems that arose after Rendina.

In light of H.B. 1513, business owners and operators should seek guidance from their tax advisors to understand how the new law might affect their businesses in Pennsylvania.

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

David M. Kall

Susan Millradt McGlone

Jeremy J. Schirra

Multistate Tax Services

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.