Tax Law Insights

On December 2, 2014, the South Carolina Department of Revenue issued S.C. Temporary Revenue Ruling No. 14-8 and No. 14-9 regarding the income and property tax treatment for married same-sex couples.Same-sex couples filing a federal income tax return with a married filing status must now file a South Carolina income tax return using the same married filing status.

In S.C. Temporary Revenue Ruling No. 14-8, the Department of Revenue instructs same-sex couples who are legally married under any state law to file their 2014 South Carolina income tax return as a married couple - either "married filing jointly" or "married filing separately" depending on their filing status for federal income tax purposes.The guidance also states that a same-sex married couple who filed a federal income tax return using a married filing status ("jointly" or "separately") and South Carolina income tax return using a single filing status ("single" or "head of household") in a prior tax year may amend their state income tax return to change their filing status for any tax year within the three year statute of limitations for the assessment of income tax.

In S.C. Temporary Revenue Ruling No. 14-9, the Department of Revenue states that same-sex couples who are legally married under any state law will now be treated as married and as "spouses" for all South Carolina tax purposes, including property taxes. Consequently, same-sex couples may now qualify for the 4% property tax assessment ratio for their legal residence or the homestead exemption which exempts from property taxes the first $50,000 in fair market value of a legal residence for South Carolina homeowners over age 65, totally and permanently disabled, or legally blind. Similarly, a person in a same-sex marriage now qualifies as a "spouse" or a "surviving spouse", and their property is exempt from certain property taxes for a residence owned by 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. Finally, transfers of real property between spouses of the same-sex may be exempted from the assessable transfer of interest rules, and same-sex couples are now exempt from the deed recording fees for deeds transferring real property between same-sex spouses or former spouses pursuant to the terms of a divorce decree or settlement.

These temporary revenue rulings are consistent with recent decisions of the U.S. District Court for the District of South Carolina 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) and Katherine Bradacs and Tracie Goodwin v. Nimrata (Nikki) Randhawa Haley, et al., Civil Action No. 3:13-cv-02351-JMC (November 18, 2014) which held that that South Carolina's ban on same-sex marriages and the state's failure to recognize valid marriages of same sex couples performed in other states or jurisdictions, who otherwise meet the legal requirements for marriage in South Carolina, is unconstitutional. The Department of Revenue's administrative position in S.C. Rev. Rul. #14-1 is now obsolete.

Taxpayer Impact

During the upcoming filing season, tax return preparers must file income tax returns for married same-sex couples using a filing status of married, not single or head of household, if they are legally married on or before December 31, 2014 in South Carolina, another state, or the District of Columbia. In addition, a same-sex couple who was legally married on or before December 31, 2013 in another state or the District of Columbia may amend their South Carolina income tax returns for any taxable year within the statutory time limitations to change to a married filing status. Consequently, same-sex couples may amend state income tax returns conceivably as far back as tax year 2011 if they were married on or before December 31, 2011. Same-sex couples who wish to amend their South Carolina income tax returns should consult a tax professional before amending any federal or state income tax returns.

Finally, a person in a same-sex marriage also qualifies as a "spouse" or a "surviving spouse" for all South Carolina tax purposes. As stated in the temporary revenue ruling, the state's recognition of same-sex marriages may allow a same-sex spouse or surviving spouse to request a refund for previously paid property taxes or deed recording fees with respect to an applicable property tax exemption or property special assessment if the same-sex couple is considered legally married under any state law for the tax period for which the refund is requested and the refund request is made within the statutory time limits.