Taxation with Discrimination

By Claire Guthrie Gastañaga, Executive Director

cgastanagacolorThe McDonnell administration has doubled down on its antipathy toward LGBT Virginians (with the Family Foundation claiming credit).  Last Friday the Virginia Department of Taxation announced a new state tax policy that discriminates against married same-sex couples by denying their ability to file joint state tax returns.  To make matters worse, the new policy also imposes additional paperwork and accounting requirements on Virginia businesses.  Whether you’re a supporter of equality, a supporter of business, or both, the solution is clear: this new policy has got to go.

Instead of embracing the U.S. Supreme Court decision that found the Defense of Marriage Act unconstitutional, Virginia has signaled its continued opposition to basic fairness by singling out married same-sex couples for discriminatory treatment under state tax laws. The tax department’s ruling is inconsistent with federal income tax laws and is in conflict with the state law that requires conformity with federal rules.  As a result, married same-sex couples in Virginia can file joint tax returns at the federal level, but will have to file as single or head of household at the state level. Moreover, under the announced policy, the married couple will have to recalculate their individual adjusted gross incomes to add back to their income amounts legally deducted under federal law.

Virginia businesses also will suffer.  Under the new policy, Virginia businesses that utilize the federal tax deduction that allows employers to claim a federal tax deduction for fringe benefits offered to employees’ spouses and dependents must adjust their state tax filings to reflect the Commonwealth’s refusal to recognize married same-sex couples.  No other state has imposed such requirements on businesses.  It appears that the intended effect is to discourage businesses from offering such benefits by making their administration particularly onerous.

It is shameful that Virginia continues to deny equality to and impose discriminatory policies on LGBT Virginians.  And, in these harsh economic times, it is outrageous that an administration that claims that Virginia is good for business has decided to impose new paperwork and accounting requirements on Virginia businesses, and, particularly on struggling small businesses.

Instead of focusing on discrimination, Governor McDonnell should have taken a lesson from his counterpart in Missouri.  Like Virginia, the Missouri constitution only recognizes a marriage between a man and a women.  Yet, Missouri’s Governor, Jay Nixon, took the polar opposite approach to addressing the rights of legally married couples under state tax policy.  Yesterday, Governor Nixon issued an executive order directing the state’s tax department to accept joint returns from married same-sex couples.  This common sense, inclusive response should serve as a model for all states that currently deny marriage equality.

Unfortunately, the McDonnell administration again chose to embrace the discriminatory option.  This new rule has helped Virginia solidify its disgraceful standing as a national leader in hostility toward LGBT residents. While the federal lawsuit (Harris v. McDonnell) that the ACLU and Lambda Legal filed to bring marriage equality to Virginia ultimately will compel the Commonwealth to end its discriminatory treatment of same-sex couples, neither Virginia residents nor Virginia businesses should have to wait for the federal courts to act to assure them fair treatment under the law. We call on the current administration – and the incoming administration – to rescind this ill-advised, discriminatory, anti-business policy.

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