The New York State Department of Taxation and Finance has issued its initial guidance for same-sex married couples who have tax questions.

My colleague, Professor Art Leonard, New York Law School, has blogged about this here. To link to the state’s official guidance click here.

Advice is provided for income taxes, estate taxes, withholding taxes, and sales taxes. It is worth noting that for estate tax purposes, New York has a lower exemption ($1.0 million) than under federal law (currently $5.0 million). As a result, the availability of the marital deduction at the state level will prove beneficial to many New York estates that are too small to generate federal taxes, but large enough to generate state estate tax liability.

While the guidance clearly states that the marital deduction is available to estates of persons who die after the effective date of the new marriage law (July 24, 2011), I still believe it is possible to claim a marital deduction for estates of decedents who may have died before that date. After all, New York did recognize same-sex marriages from other states before the enactment of the new marriage law. However, to make the marital deduction claim under state law, presumably the decedent’s estate would have to also claim a marital deduction at the federal level. That is because the general rule in New York, before July 24, was that when an estate tax return is filed for federal purposes, the amounts used to compute the gross estate and any elections reported on the federal return were binding for New York state purposes.

But what if there were no federal return required, as would be the case for any estate under the federal exemption amount? In that case, I see no reason why the decedent’s estate should not avail itself of the same procedure outlined in the current guidance: file a federal pro forma return and claim the marital deduction.

Finally, estate planners in New York who have not already done so should discuss with their clients what sort of marital deduction planning they want to do at the state level.
 

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