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State Exemptions for Religious Organizations After the DOMA Decision and Revenue Ruling 2013-17

The "place of celebration" rule adopted by the IRS in Revenue Ruling 2013-17 means that legally married same-sex couples are now recognized as married for federal tax purposes regardless of the state in which they reside. This ruling clearly affects the design and operation of employer-sponsored benefit plans in all states, whether the state recognizes same-sex marriage or some other form of legal relationship between same-sex couples or continues to define marriage as a union between one man and one woman. Somewhat less clear is how the place of celebration rule will affect the legal obligations of religious organizations in states that recognize same-sex marriage.

Most states that recognize same-sex marriage exempt religious organizations from the application of statutes that prohibit discrimination based on sexual orientation. As a result, religious organizations in these states may generally continue to treat an employee in a same-sex union differently than an employee who is married to someone of the opposite sex. Thus, these state exemptions appear to give religious organizations the right to refuse equal employment benefits to employees in same-sex marriages despite the Service's guidance. Questions remain, however, regarding the scope of these exemptions and whether they would survive constitutional scrutiny.

First, many of the state exemptions do not define with specificity what constitutes a "religious" organization. Connecticut, for example, exempts religious corporations, entities, associations and societies from state laws that prohibit discrimination based on sexual orientation (Conn. Gen. Stat. § 46a-81p); however, it does not define what organizations qualify as "religious" for purposes of the statute. Moreover, case law often does not provide a ready interpretation or is non-existent. For example, the only Connecticut case to specifically discuss the scope of the state's religious employer exemption holds simply that the Boy Scouts of America is not a "religious" corporation for purposes of the exemption statute. Boy Scouts of Am. v. Wyman, 213 F. Supp. 2d 159, 168 (D. Conn. 2002) aff'd, 335 F.3d 80 (2d Cir. 2003). Accordingly, at present there is no conclusive guidance in Connecticut as to whether entities merely affiliated with religious organizations, such as hospitals and nursing homes operated by religiously affiliated employers, are permitted to benefit from the exemption. Furthermore, the exemptions in each state vary in scope with regard to the types of organizations that are exempt. As a result of this ambiguity, it is not entirely clear from state to state which entities qualify as "religious" organizations and which do not.

Second, it is unknown whether these state exemptions will survive an equal protection challenge under the United States Constitution or the state's constitution. The U.S. Supreme Court's decision in United States v. Windsor (570 U.S. ___, 133 S. Ct. 2675 (2013)), which led to the Service's place of celebration rule, relied on the equal protection clause of the Fifth Amendment. Similarly, some states have relied on an equal protection analysis under their respective constitutions to strike down statutes prohibiting same-sex couples from marrying. The rationale of these decisions appears to pit Fifth Amendment equal protection rights against First Amendment religious freedom rights. In many states this tension is visible in the conflict between state laws that recognize both same-sex and opposite-sex spouses as "spouses" without distinction, and the state exemption statutes that allow religious organizations to provide different benefits to individuals based on their sexual orientation.

Due to a lack of binding authority in many states, one cannot predict with certainty how the courts will resolve this tension, or whether they will find state religious organization exemptions like the one in Connecticut constitutional. The risk of litigation remains for religious organizations that specifically draft employee benefit plans to exclude same-sex spouses. Nonetheless, these exemption statutes remain good law, and legislative history in some states suggests that these statutes are intended to provide religious organizations an affirmative defense to litigation that ensues from a claim of discrimination on the basis of sexual orientation. Therefore, at least for the time being employers that are religious organizations in states with exemption statutes appear to have good legal grounds to deny spousal benefits to an employee in a same-sex union while at the same time providing spousal benefits to employees in opposite-sex marriages.

Thanks to Braden Clement, a first year Associate at Verrill Dana, for his efforts in producing this post. Braden has recently passed the Maine bar exam and is eagerly awaiting admission.

Topics: Plan Administration