Florida Tax Attorney Blog

A federal court has held the denial of federal tax benefits to same-sex couples to be unconstitutional. More specifically, the Second Circuit held that the federal government unconstitutionally denied an estate tax marital deduction to a same-sex couple. See Windsor v. U.S., 2d. Cir., No. 12-2335-cv(L) (October 18, 2012).

But the implications of this case are far broader than the tax implications. Significantly, the Windsor Court treated sexual orientation as a quasi-suspect class, applying a heightened level of constitutional scrutiny. From an analytical perspective, this is a perceptible and welcomed improvement from many prior cases which have identified sexual orientation as a non-suspect class subject to an extremely low threshold of constitutional review. Moreover, the Court held that the denial of the federal tax benefit in this case was unconstitutional based on the broader holding that Section 3 of the Defense of Marriage Act ("DOMA")* was unconstitutional. This is another big step toward marriage equality.

*Section 3 of the Defense of Marriage Act ("DOMA") defines "marriage" as a relationship between a man and a woman and thereby legally codifies the non-recognition of same-sex marriages for all federal purposes, including federal tax benefits.

In a recent case, the Florida Supreme Court held a residence requirement set forth in Florida's homestead exemption statute to be invalid and unenforceable because the residence requirement was not required by the provision of the Florida Constitution which authorizes the homestead exemption. Garcia v. Andonie, Florida Supreme Court, No. SC11-554, October 4, 2012. Specifically, the statute required the taxpayer seeking the exemption to be a permanent resident in order to qualify for the exemption. However, the Court held that the Florida Constitution does not require a taxpayer to be a permanent resident to claim the exemption. Significantly, the Court emphasized that the constitutional requirement is an either/or proposition. In other words, a taxpayer either has to use the property as their permanent residence or the property has to be used as a permanent residence by individuals who are legally or naturally dependent on the taxpayer. A brief synopsis of the case is included below.

Facts: The taxpayers were citizens of Honduras who lived with their children at the property in question. The taxpayers were allowed to the stay in the United States pursuant to a temporary visa. The taxpayers' children were born in the United States and accordingly were citizens of the United States and the State of Florida.

Holding: Although the taxpayers could not claim permanent residence due to their temporary visas, they were nevertheless entitled to the homestead exemption because their children could claim the property as their permanent residence.

It is often assumed by courts and commentators that an employee's presence within a state creates nexus for the employer within that state, regardless of the nature and extent of the employee's activities in that state. But the proposition that an employee creates nexus regardless of that employee's activities might be far too encompassing.

To the contrary, Supreme Court jurisprudence indicates that it is the nature and extent of the employee's activities in the taxing state and not the employee's mere presence which supports nexus. In this respect, the Court has called the distinction between an employee and an independent contractor a distinction "without constitutional significance." Scripto. Indeed, if such a "fine distinction" were of a constitutional significance, employers could simply fire "employees" and rehire them as "independent contractors." Id. To be sure, independent contractors may still be nexus creating as illustrated by the Scripto case, but there is also the possibility that their activities do not rise to that level. This possibility is incentive enough for employers to fire "employees" and rehire them as "independent contractors." Constitutional lines cannot be so arbitrary.

Given the established constitutional irrelevance of the employee/independent contractor dichotomy, the nexus analysis is one of the nature and extent of the in-state activities. To this end, the focus is on solicitation and exploitation of the taxing state's market. See Scripto (emphasizing independent contractors' "exploitation of the consumer market"); Tyler Piping (emphasizing independent contractor's relationship to the corporation's "ability to establish and maintain a market in [the taxing] state for sales"); National Geographic (emphasizing the "continuous presence" and solicitation activities).

Moreover, even cases that appear to be subscribe to the traditional view actually have more narrow holdings that are more consistent with Scripto, Tyler Piping, and National Geographic. For instance, Standard Pressed Steel, cited by the National Geographic Court, held that a single employee created nexus. However, in reaching this conclusion, the Supreme Court emphasized that this single employee "made possible the realization and continuance of valuable contractual relations" with customers of that state.

Finally, other nexus cases not involving this employee/independent contractor dichotomy similarly make clear that the focus of the nexus analysis is on the nature and extent of activities in the taxing state and not on formalistic concepts like the employee/independent contractor dichotomy. For instance, the emphasis in Miller Brothers was on the fact that the Delaware seller did not go into Maryland to make the sales. Rather, the Marylanders went into Delaware to make the purchases. In other words, the requisite exploitation of the Maryland consumer market was not present in Miller Brothers. Likewise, the Bellas Hess Court drew a sharp distinction between truly remote vendors like Bellas Hess and vendors exploiting the taxing state's market through solicitors and property within the taxing state.

In light of the foregoing, I would argue that the nature and extent of the employees' activities within the taxing state should be considered prior to making a nexus determination.

In the wake of major budget cuts at the hands of pro-life lawmakers, three Texas Planned Parenthood branches have consolidated into a single entity: Planned Parenthood of Greater Texas. This is according to an article published this week by Emily Ramshaw of the Texas Tribune and reprinted in the New York Times. As is the case with most business combinations, the motivating purpose of this transaction was to create a leaner and more efficient organization. In this respect, the integration of the formerly separate businesses will likely result in a net cost savings attributable to non-economic factors such as functional integration, centralization or management, and economies of scale. The organization hopes that these cost savings will counter the lost financing.

So the seemingly age-old abortion debate is still very much alive and well. But this is a debate that never should have been. A woman's constitutional right to abortion cannot be disputed.

Let me be clear: as a Catholic, I am personally opposed to abortion. I believe that life begins at conception. But I believe that life begins at conception because I am Catholic. Science, on the other hand, seems to indicate that "life," as that term is scientifically defined, begins at viability (i.e. the point at which a fetus is able to survive outside the womb - about 24-28 weeks). And herein lies the problem. The opposition to abortion is a religious-based opposition.

With that being said, it becomes clear that the abortion debate is, at bottom, a religious debate. As such, it has no place in our political or legal system. To the contrary, the presence of this debate represents in impermissible entanglement of government and religion and a fundamental misunderstanding of the principles upon which this Nation was founded. Consequently, despite my personal beliefs as a Catholic, my professional opinion as a lawyer is that women must be afforded the right to choose as a matter of constitutional law. Some have called this inconsistent. But as a lawyer (and more importantly, as an American), I cannot allow my personal beliefs to undermine the clear intention of the United States Constitution.

Yesterday, KPMG announced that it will offer tax offsets to its same-sex employees for the additional federal and state tax costs incurred when they pay for medical benefits for their same-sex domestic partners.

Here's how it works: Basically, KPMG employees who pay for medical and dental benefits for same-sex partners who do not qualify as a spouse or dependent under federal law will receive a credit at the end of the year funded by KPMG.

KPMG is the second major public accounting firm to implement this type of program (Ernst & Young was the first last month).

Back in October, I wrote an article entitled, Separate is Not Equal: Same-Sex Couples Should Be Entitled to Federal Tax Benefits. That article summarizes the disparate tax treatment afforded to same-sex couples and briefly explains why I believe this disparate treatment violates the First Amendment (among other provisions of the U.S. Constitution - e.g., Equal Protection Clause, Due Process Clause).

The recent initiatives by KPMG and Ernst & Young demonstrate that the accounting industry recognizes the injustice of subjecting same-sex couples to increased tax burdens on the basis of their sexual orientation. When will the government recognize this?

I've said it before, and I'll say it again, the opposition to same-sex marriage is a predominantly religious one. As such, it has no place in the law or politics. To the contrary, this type of religious entanglement is inconsistent with some of the core values upon which this Nation was founded (namely, anti-establishment of religion and free exercise of religion).

As a final note, it is interesting to note the similarities between today's ban on same-sex marriage and the historical ban on interracial marriages. Consider the landmark U.S. Supreme Court case of Loving v. Virginia as an example. That case involved the prosecution of a Virginia couple for violation of a Virginia statute which prohibited interracial marriages.

In support of their conviction, the Virginia judge wrote the following: "Almighty God created the races white, black, malay, and red, and he placed them on separate continents. . . . The fact that he separated the races shows that he did not intend for the races to mix."

Right about now, you're probably asking yourself how someone could be so ignorant. I don't understand either. Maybe we should ask the government. After all, current federal law bans same-sex marriage on the same caliber of logic.

It is well-established that the Due Process and Commerce Clauses of the U.S. Constitution impose limits on the taxing powers of the several States. E.g., Bellas Hess v. Illinois, 386 U.S. 753 (1967); Quill Corp. v. North Dakota, 504 U.S. 298 (1992). Under the Due Process Clause, there must be some minimum connection between a state and a corporation before such state may tax that corporation. E.g., Miller Bros. Co. v. Maryland, 347 U.S. 340, 344-45 (1954). Under the Commerce Clause, the corporation must have a "substantial nexus" with the taxing state. See Quill Corp. v. North Dakota, supra (citing Complete Auto v. Brady, 430 U.S. 274 (1977). In addition, the tax must be fairly apportioned, non-discriminatory, and fairly related to the services provided to the corporation by the taxing state. Id.

Of course, a corporation will typically know where its property and employees are located. Thus, to the extent a corporation has property or employees in a given state, it can be said to be on notice of its potential exposure to tax in that state, and the requirements of the Due Process Clause are, therefore, satisfied. In addition, the substantial nexus requirement of the Commerce Clause will likely be satisfied assuming that the tax is fairly apportioned, non-discriminatory, and fairly related to the state services provided to the corporation.

But what about corporations engaged in the leasing business (e.g., rental car businesses, equipment leasing businesses)? Can nexus be established with a state solely by virtue of a lessee's transportation of the leased property into that state?

The current trend suggests that the answer is yes.

Continue reading "STATES MAY BE DEPRIVING LEASING COMPANIES OF DUE PROCESS" »

Florida Republican Ileana Ros-Lehtinen became the 125th sponsor of a bill to repeal the Defense of Marriage Act (DOMA) last week.

Under DOMA, "the word 'marriage' means only a legal union between one man and one woman as husband and wife, and the word 'spouse' refers only to a person of the opposite sex who is a husband or a wife."

In this single sentence, our law unfairly deprives same-sex couples of countless federal benefits, including, without limitation:

• Social Security & Medicare Benefits;

• Veterans' Benefits;

• Employment Benefits;

• Military Service Benefits;

• Immigration and Naturalization Rights;

• Federal Tax Benefits

In the tax context, this means that same-sex couples who have been validly married under the laws of their states are explicitly denied the federal tax benefits associated with being married. At the most basic level, this precludes a married same-sex couple from filing a joint tax return. As a result, the couple cannot take advantage of the lower tax brackets available to married couples. Because same-sex couples must file separate tax returns, many couples lose thousands of dollars each year.

This result is constitutionally offensive in a Nation that claims to guarantee equal protection. Indeed, the men who founded our country must be rolling in their graves right now.

To be sure, this Nation was founded by Christians. But by Christians who were fleeing religious persecution and intolerance. By Christians who specifically intended to avoid establishment of a government religion. By Christians who created the First Amendment - which provides for a right to freely exercise any religion (or no religion) and prohibits an establishment of religion by the government - to avoid the religious strife and intolerance that plagued their homeland of England. By Christians who were committed to erecting a "wall of separation" between the government and all forms of religion.

The opposition to same-sex marriage is a predominantly religious one. Indeed, the vast majority of opponents cite bible verses as evidence of the immorality of same-sex marriage. Their reliance on the bible, however, is misplaced, for religion has no place in government, law, or politics. And our political system's preoccupation with this issue has seriously blurred the line between state and religion.

With that being said, I believe that opponents of same-sex marriage are operating under a fundamental misconception of the U.S. Constitution.

Continue reading "SEPARATE IS NOT EQUAL: SAME-SEX COUPLES SHOULD BE ENTITLED TO FEDERAL TAX BENEFITS " »

As a lawyer, I am accustomed to hearing a certain seven-word phrase from my friends and family on a regular basis: "I have a legal question for you." Lately, I have been receiving many questions about Florida's homestead property tax exemption, so I thought it would be helpful to briefly discuss the basic provisions of the Florida law on this point.

Pursuant to the Florida Constitution, "'[e]very person who has the legal or equitable title to real estate and maintains thereon the permanent residence of the owner, or another legally or naturally dependent upon the owner, shall be exempt from taxation thereon, except assessments for special benefits, up to the assessed valuation of twenty-five thousand dollars ($25,000) and, for all levies other than school district levies, on the assessed valuation greater than fifty thousand dollars ($50,000) and up to seventy-five thousand dollars ($75,000), upon establishment of right thereto in the manner prescribed by law."

WHAT IT MEANS: In Florida, the owner of homestead property is constitutionally entitled to a property tax exemption of up to $50,000 ($25,000 for the first $50,000 in assessed valuation and $25,000 for the assessed valuation between $50,000 and $75,000) if he or she satisfies the statutory conditions set forth by the Florida Legislature.

Pursuant to Florida Statute 196.031(1)(a), "[e]very person who, on January 1, has the legal title or beneficial title in equity to real property in this state and who resides thereon and in good faith makes the same his or her permanent residence, or the permanent residence of another or others legally or naturally dependent upon such person, is entitled to an exemption from all taxation, except for assessments for special benefits . . ."

WHAT IT MEANS: In this statute, the Florida Legislature sets forth 4 basic conditions that must be satisfied in order to qualify for the homestead exemption from ad valorem taxation: (1) The homestead property must be located in Florida. (2) The person claiming the exemption must hold legal or equitable title to the property. In other words, the person claiming the exemption must have an ownership interest in the property. In this regard, the property may be held individually, jointly, or through a trust. (3) The property must be used as a "permanent residence" by the person claiming the exemption or by a natural dependent of the person claiming the exemption. "Permanent residence" has been defined as "that place where a person has his or her true, fixed, and permanent home and principal establishment to which, whenever absent, he or she has the intention of returning." See Fla. Stat. 196.012(18). Whether a property constitutes a "permanent residence" is a question of fact to be determined by the property appraiser on a case-by-case basis. In making this determination, the property appraiser may consider factors like where children are enrolled in school, where the person claiming the exemption is employed, payment of utilities at the subject property, and the address contained on documents like driver's licenses, vehicle registration, voter registration, bank statements, and federal tax returns. See Fla. Stat. 196.015. (4) The property must be used as a "permanent residence" as of January 1 of the tax year for which the exemption is sought.

Continue reading "WHAT YOU NEED TO KNOW ABOUT FLORIDA'S HOMESTEAD TAX EXEMPTION" »