Tax Law Insights

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), the United States District Court for the District of South Carolina (Charleston Division) held that South Carolina's prohibition of marriage for same sex couples who otherwise meet all other legal requirements for marriage in the state is unconstitutional and violates the Due Process Clause and Equal Protection Clause of the Fourteenth Amendment of the U.S. Constitution.  The District Court also invalidated as a matter of law Article 17, Section 15 of the South Carolina Constitution (the "Constitution") and Sections 20-1-10(B)-(C) and 20-1-15 of the South Carolina Code of Laws (the "Code") which prohibits the marriage of same sex couples.  U.S. District Judge Richard Mark Gergel's order requiring Probate Judges to issue marriage licenses to same sex couples otherwise qualified to marry under the state's laws, but for their sexual orientation, is the latest of many cases decided by federal courts.  This case, however, did not decide whether South Carolina is required to recognize same sex marriages performed and entered into in other jurisdictions.

In 1996, Congress enacted and President Clinton signed the Defense of Marriage Act ("DOMA").  Section 2 of DOMA allows states the authority to not recognize same-sex marriages performed and entered into in other jurisdictions.  Section 3 of DOMA defined "marriage" for purposes of federal law as a legal union between one man and one woman as husband and wife.  Section 3 further defined the term "spouse" as a person of the opposite sex who is a husband or wife.  Last summer, in U.S. v. Windsor, the U.S. Supreme Court invalidated Section 3 of DOMA which denied the surviving spouse of a state-sanctioned same sex marriage in New York the ability to obtain the federal estate tax deduction available to surviving spouses of opposite sex marriages.  The Supreme Court held that Congress's definition of "marriage" and "spouse" denied certain federal benefits to members of same sex marriages and had the "principal effect to identify and make unequal a subset of state-sanctioned marriages."  The Windsor decision affected all federal statutes and regulations where marital status is a deciding factor.

Following the enactment of DOMA, the marriage laws in South Carolina were amended to prohibit same sex couples from marrying and to prevent the state from recognizing same sex marriages performed and entered into outside South Carolina.  Section 20-1-10(B)-(C) of the Code provides who a man and a woman can marry, and the statute specifically states that no man can marry another man or no woman can marry another woman.  Section 20-1-15 of the Code also states that a marriage between persons of the same sex is void ab initio (i.e., void from the beginning) and is against the public policy of South Carolina.  On November 7, 2006, South Carolina voters approved Amendment No. 1 which amended the Constitution to provide that a marriage between one man and one woman is the only lawful domestic union valid or recognized in the state.

On July 28, 2014, the U.S. Court of Appeals for the Fourth Circuit affirmed a decision of a Virginia U.S. District Court, in Bostic v. Schaefer, concluding that Virginia's ban on same sex marriage violated the constitutional rights of same sex couples.  This court is the highest federal court within the states of Maryland, North Carolina, Virginia, West Virginia, and South Carolina.  As Judge Gergel stated in his ruling, the Bostic decision is controlling precedent for all district courts within the Fourth Circuit, including the district courts in South Carolina.  Judge Gergel's order does not take effect until noon on November 20, 2014 to allow Attorney General Alan Wilson to appeal his ruling to the Fourth Circuit U.S. Court of Appeals.

Taxpayer Impact

Should the U.S. Court of Appeals for the Fourth Circuit or the U.S. Supreme Court decline to review or reverse Judge Gergel's order, same sex couples will be able to marry in South Carolina beginning November 20, 2014.  For those same sex couples married in South Carolina after Judge Gergel's ruling takes effect, these residents will likely be able to invoke the benefits and protections of South Carolina's laws and regulations in the tax context, including the right to:

• File state income tax returns with the filing status - married filing jointly or married filing separately - if couples are considered "married" as of December 31, 2014;
• Claim the two-wage-earner credit for married individuals filing a joint state tax return where both spouses have earned income taxed to South Carolina;
• Deduct a portion of qualified retirement income by a surviving spouse attributable to a deceased spouse;
• Jointly deduct a maximum of $30,000 against South Carolina sourced income for married individuals age 65 and older;
• Deduct alimony paid to a former spouse;
• Receive between 50% and 100% of his or her deceased spouse's estate if the spouse dies without executing a valid will;
• Claim the elective share, as a surviving spouse, of one-third of his or her spouse's probate estate;
• Obtain personal exemptions for spouse and dependents of a spouse under the age six on a joint state tax return;
• Obtain child and dependent care credit for one spouse's children on a joint state tax return;
• File a claim for innocent spouse relief or a joint offer in compromise;
• Exempt from certain property taxes a residence owned by a person age 60 years or older, a veteran or former law enforcement officer, a medal of honor recipient, a prisoner of war, or a paraplegic or hemiplegic and his or her widow or widower if certain criteria is met; and

Receive state pension, retirement and survivor benefits as a surviving spouse upon his or her spouse's death.