Tax Law Insights

Robert is a veteran tax return preparer of 20 years, who walks into his office on February 2, 2015 to begin a busy income tax filing season. Julie and Michelle stop by Robert's office and give their wage and income statements to Robert for the calendar year 2014. They tell Robert they were legally married in Massachusetts on July 4, 2013, but they are South Carolina residents now and wish to file both a federal and South Carolina income tax return as a married couple. Shortly thereafter, another couple, Mark and Brad, walk into Robert's office and state they were married in South Carolina on November 20, 2014. Mark and Brad are South Carolina residents and also desire to file a married federal and South Carolina income tax return for tax year 2014. What should Robert do as the tax preparer for these two same-sex couples?

In Katherine Bradacs and Tracie Goodwin v. Nimrata (Nikki) Randhawa Haley, et al., Civil Action No. 3:13-cv-02351-JMC (November 18, 2014), the United States District Court for the District of South Carolina (Columbia Division) ruled that South Carolina's failure to recognize valid marriages of same sex couples performed in other states or jurisdictions, and who otherwise meet the legal requirements for marriage in South Carolina, is unconstitutional and violates the Due Process Clause and Equal Protection Clause of the Fourteenth Amendment of the U.S. Constitution. U.S. District Judge J. Michelle Childs's order mandates the State of South Carolina and Attorney General Alan Wilson to stop enforcing or applying Article 17, Section 15 of the South Carolina Constitution and Section 20-1-15 of the South Carolina Code of Laws as it relates to South Carolina denying legal recognition of marriage to same sex couples married in other states or the District of Columbia.

And last week, in Colleen Therese Condon and Ann Nichols Bleckley v. Nimrata (Nikki) Randhawa Haley, et al., Civil Action No. 2:14-4010-RMG (November 12, 2014), U.S. District Judge Richard Mark Gergel issued a ruling holding that South Carolina's prohibition of marriage for same sex couples who otherwise meet the legal requirements for marriage was unconstitutional. This ruling paved the way for same sex couples to apply for a marriage license at the county probate courts in South Carolina. Judge Gergel's order did not take effect until noon on November 20, 2014 to allow Attorney General Alan Wilson to appeal his ruling to the U.S. Court of Appeals for the Fourth Circuit and the U.S. Supreme Court. On November 18, 2014, a three-judge panel from Fourth Circuit denied the Attorney General's appeal for a temporary hold on permitting same sex marriages until this case could be heard by all 17 federal circuit judges. On November 20, 2014, the U.S. Supreme Court denied the state's request to prevent Judge Gergel's ruling from taking effect and to continue the state's ability to deny the legal recognition of same sex marriages performed outside of South Carolina.

Taxpayer Impact

Today, the law is then clear as it relates to same sex marriages in South Carolina. Same sex couples may get married in South Carolina if they otherwise meet the legal requirements for marriage, and South Carolina is now required to recognize those marriages of same sex couples performed in other states or the District of Columbia. Robert, our tax preparer in the above hypothetical, will need to prepare married federal and South Carolina state income tax returns for both Julie and Michelle and Mark and Brad.

On February 3, 2014, the South Carolina Department of Revenue issued S.C. Revenue Ruling #14-1 stating that South Carolina does not recognize same-sex marriages. In the ruling, the Department of Revenue instructed that same-sex couples considered married for federal income tax purposes must still use a filing status of single or, if applicable, head of household for South Carolina income tax purposes and prepare their South Carolina returns as though they are single. S.C. Rev. Rul. #14-1.

Judge Childs' order requires South Carolina to recognize same sex marriages performed in other states or the District of Columbia. The Department of Revenue's administrative position in S.C. Rev. Rul. #14-1 is contrary to Judge Childs order. Under Judge Childs' order, married same sex couples must now use an income tax filing status of married, not single or head of household, if they are legally married on or before December 31, 2014. It is hoped that the Department of Revenue would soon issue revised instructive guidance to the public for the upcoming 2014 tax filing season.