Domestic Partners Not Eligible for Marital Exemption under NJ Estate Tax
Jiwungkul v. Dir., Div. of Taxation, 2017 N.J. Super. LEXIS 62, No. A-4089-15T2, (N.J. Super. Ct. App. Div. May 30, 2017).
This case pertains to marital deduction eligibility for domestic partners in New Jersey under the New Jersey Inheritance Tax and the New Jersey Estate Tax. Here, Rucksapol Jiwungkul and Michael R. Connolly, Jr. were domestic partners. Connolly died shortly before their marriage. Jiwungkul, as the surviving partner, filed New Jersey tax returns on behalf of Michael Connolly’s estate indicating that they were domestic partners. Specifically, Jiwungkul claimed the spousal exemption allowed for domestic partners under the New Jersey Inheritance Tax, codified as N.J.S.A. §54:34-2(a)(1), and under the New Jersey Estate Tax, codified as N.J.S.A. §54:38-1 to -16. Jiwungkul’s filed exemption under the New Jersey Inheritance Tax was granted, but his exemption filed under the New Jersey Estate Tax was denied.
Jiwungkul filed suit claiming he was entitled to a marital deduction under the New Jersey Estate Tax. The Tax Court affirmed the denial of the marital deduction. On appeal, Jiwungkul alleged that the Domestic Partnership Act (“DPA”) violates the equal protection guarantee of the New Jersey Constitution and the New Jersey Supreme Court’s ruling in Lewis v. Harris, 908 A.2d 196 (N.J Sup. Ct. 2006). Jiwungkul saw no reason for there to be a distinction between the marital deduction under the New Jersey Inheritance Tax Law and the New Jersey Estate Tax Law.
The appellate court noted that New Jersey statutes, N.J.S.A. §37:1-32(n) and N.J.A.C. §18:26-3A.8(e) authorize the marital deduction to members of a civil union or marriage, but the DPA does not authorize such a deduction. Moreover, the Appellate Division relied on the Court’s ruling in Lewis, stating that the New Jersey constitution requires the State to provide the same rights and benefits/responsibilities to same-sex couples as heterosexual couples. The State can do so by either allowing for same-sex couples to marry, or create new statutes providing all of the same rights/responsibilities to same-sex couples; New Jersey chose the latter.
Thus, the Appellate Division found that the denial of Jiwungkul’s request was consistent with the New Jersey Supreme Court’s ruling in Lewis, in that the denial of Jiwungkul’s spousal exemption under the New Jersey Estate Tax neither violated the New Jersey Constitution nor the DPA.
Specifically, the State legislature provided four exemptions for domestic partners – but the estate tax was not one of them. Same-sex couples are eligible for an exemption from the estate tax if they are either married or in a civil union. As Jiwungkul and Connolly entered into a domestic partnership, they did not qualify for the exemption. Notably, the Court opined that same-sex couples are not denied any rights that a heterosexual couple has; if Jiwungkul wanted to claim the estate exemption, he had the option of entering into a civil union or marriage. Given that he entered into a domestic partnership, he was not afforded the same benefits under a civil union or marriage.
The Court noted that tax exemptions may be incorporated into a statute under “extraordinary circumstances.” One such circumstance would be if the couple was for some reason unable to enter into a marriage or state-sanctioned relationship. In that instance, the Court would grant them the tax benefit.