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Tuesday, March 04, 2014

Ind. Gov't. - Story reports "Indiana measure would ban same-sex marriage tax benefits" [Updated a 4th Times!]

This morning the Indianapolis Star posted a confusing, unsigned AP story with that headline. It reports:

Indiana would break from an Internal Revenue Service policy recognizing same-sex marriage for tax purposes if a late-session change becomes law.

The Senate on Monday approved adding the language to another tax bill. The measure is up for a final vote in the chamber Tuesday [that would be today].

The IRS last year announced all same-sex marriages would be recognized in federal tax returns. The ruling applies regardless of whether the couple lives in an area where their marriage is recognized.

If passed into law, the Indiana bill would split from the IRS and not grant same-sex couples the same tax breaks other couples now receive.

Republican Sen. Brandt Hershman of Buck Creek says blocking the benefits would match Indiana tax policy with the state ban on same-sex marriage.

The story does not give the bill number. The ILB has tried to locate a bill with this amendment, but has been unsuccessful so cannot comment either on how the language would impact current Indiana policy, or when the "change" would take effect.

On Nov. 23, 2013 the Indiana Department of Revenue issued a document headed "Same-sex Marriage Tax Filing Guidance." Jon Murray, then of the Indianapolis Star, reported on it the same day in this story. From the story:

The U.S. Supreme Court in June ruled that the federal government must recognize legally performed same-sex marriages. Under a resulting policy announced Aug. 29 by the Internal Revenue Service, legally married gay couples will be able to file a joint federal tax return for the first time next year — no matter where they currently live.

That creates a challenge in Indiana, which is among 24 states that have gay-marriage bans and also use state income-tax forms that rely on the federal tax return form as the basis for income calculations.

The state's new guidance, issued on the Department of Revenue's website this afternoon, advises couples who file federal returns with a married filing status to also fill out sample federal single-filer forms. To do so, they must divide their joint income.

They then can refer to those sample federal returns when they fill out Indiana's tax return for single-filers. The website offers some advice for dividing up income and specifies which lines on the federal form affect the state return.

Thus, same sex Indiana couples, legally married in another state, may file a joint federal return, but for purposes of the Indiana tax, must file as unmarried.How Hershman's amendment would change this, if at all, is not clear without being able to review its language.

[Updated at 10:45 AM and again at noon]
Thanks to Sen. Hershman, who has sent the ILB the bill number, HB 1380 and identified the motion as Amendment 5.

However, this confuses the ILB, as amendment 5 strikes from the bill the entire SECTION 8 (of the Feb. 28 printing, at pp. 7-8), containing the annual update to IC 6-3-1-11, to define the term "Internal Revenue Code" as that in effect as of the current year.

Perhaps (likely) the amendment to IC 6-3-1-11 will appear in another bill. It is unclear to the ILB, however, how any change to Indiana tax law could prevent Indiana same-sex couples legally married in another state from filing their federal return jointly as married couples under federal law.

The State of Indiana currently does not recognize the marriage and does not permit joint filing of Indiana tax returns, as indicated earlier in this post. But as we've seen this week with Kentucky, which has been required by a federal court decision to recognize same-sex marriages performed in other states, that could change with litigation.

[More at 1:55 PM] The ILB has located the LSA fiscal note for the version of HB 1380 as it existed before the second reading Senate amendments. Here is the applicable analysis, from p. 3, of SECTION 8's changes to IC 6-3-1-11:

Internal Revenue Code: The bill updates the reference to the Internal Revenue Code (IRC) as amended and in effect on January 1, 2014. The current reference to the IRC pertains to all IRC provisions amended and in effect on January 1, 2013. There were no significant updates to the IRC enacted by Congress during 2013.

However, some federal provisions were allowed to expire on December 31, 2013, that Indiana requires to be added back to federal adjusted gross income. Those add-backs will no longer be necessary and should not have a significant fiscal impact. (It is possible that these federal provisions could be retroactively reinstated during 2014.) The expiring provisions with an Indiana add-back are:
• Discharge of indebtedness on a principal residence.
• Increase in section 179 expensing to $500,000/$2,000,000 and expansion of the definition of section 179 property.
• Special expensing rules for certain film and television productions.

Senator Hershman's 2nd reading amendment removed SECTION 8 from HB 1380 entirely. What connection any of this has to do with Indiana "breaking from an Internal Revenue Service policy recognizing same-sex marriage for tax purposes" continues to elude me.

[Updated at 3:05 PM] Senator Hershman has sent the ILB this response:

We couple our tax code selectively to the federal IRC. If we did a blanket coupling, it would potentially require recognition and joint filing under state law.

We aren’t doing anything to the federal ability to file jointly, we’re just not creating a state right to do so through coupling to the federal code.

Hope this helps.

ILB: Repealing SECTION 8 will simply leave IC 6-3-1-11 (starts at bottom of p. 16) as it currently exists.

Posted by Marcia Oddi on March 4, 2014 09:55 AM
Posted to Indiana Government