Did Oregon's income-tax exclusion for spousal health insurance violate the state constitution when same-sex domestic partners were excluded?

Plain-English summary

Representative Jackie Taylor asked whether Oregon's tax treatment violated the Oregon Constitution. The federal Tax Code excludes the value of employer-paid health insurance for an employee's spouse from taxable income. Oregon piggybacked on the federal rule, so spousal coverage was tax-free for Oregon income tax too. Coverage for an employee's same-sex domestic partner, in contrast, was generally taxable, because same-sex partners did not qualify as a "spouse" and rarely qualified as a "dependent" under the IRS tests.

Attorney General Hardy Myers concluded yes. The Oregon Court of Appeals had recently held in Tanner v. OHSU that public employers violated Article I, section 20 of the Oregon Constitution (the privileges-and-immunities clause) when they provided spousal health insurance but denied equivalent benefits to same-sex domestic partners. The AG saw no reason the state's role as a taxing authority should be analyzed differently than its role as an employer. Disparate tax treatment of the same employer-paid coverage was therefore unconstitutional under Tanner.

Currency note

This opinion was issued in 1999. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: What did Article I, section 20 of the Oregon Constitution actually say?
A: "No law shall be passed granting to any citizen or class of citizens privileges, or immunities, which, upon the same terms, shall not equally belong to all citizens." The Tanner court read this to prohibit denying benefits to a class defined by personal characteristics (here, sexual orientation) without a genuine and relevant difference justifying the denial.

Q: If federal tax law treated domestic partners the same way, why was only Oregon's treatment a problem?
A: The opinion noted that even though the federal Internal Revenue Code imposed the same disparate treatment, the Supremacy Clause of the U.S. Constitution prevented Article I, section 20 of the Oregon Constitution from being applied to federal tax law. Oregon's own income tax, by contrast, was subject to the state constitution, and there the disparity violated Article I, section 20.

Q: How could a domestic partner's coverage have been tax-free?
A: Only if the partner qualified as the employee's "dependent" under 26 USCA § 152(a)(9), which required the partner to receive over half their support from the employee, share the employee's principal home, and be a member of the employee's household. Most domestic partners would not satisfy all three.

Q: What remedy did the opinion suggest?
A: The opinion explicitly declined to specify a remedy. It noted two possibilities: extending the exclusion to same-sex domestic partner coverage, or eliminating the exclusion for spouses. The choice was left to the Legislature.

Q: Did this opinion cover unmarried opposite-sex partners too?
A: No. The opinion addressed only same-sex domestic partners and noted that Tanner did not reach the rights of unmarried opposite-sex couples. The AG expressly declined to opine on that situation.

Background and statutory framework

Federal income tax excludes employer-paid health insurance for an employee's spouse from gross income (26 USCA § 106). Oregon's individual income tax begins with federal taxable income and adds or subtracts the items listed in ORS chapter 316 (ORS 316.048). The exclusion for spousal coverage flowed through automatically. ORS chapter 316 contained no modification for partner coverage, so an employee whose partner did not qualify as a federal "dependent" included the value of that coverage in Oregon taxable income.

Tanner v. OHSU, 157 Or App 502 (1998), changed the constitutional landscape for Oregon public employers. The Court of Appeals held that providing spousal coverage while denying equivalent coverage to same-sex domestic partners discriminated on the basis of a personal characteristic (sexual orientation) without any justification a court would accept. The opinion's central move was to apply that holding to the state's tax conduct, reasoning that if there was no genuine difference between the classes for benefits purposes, there could be none for tax-treatment purposes either.

Citations and references

Statutes and constitutional provisions:
- Article I, section 20, Oregon Constitution
- ORS 316.048, Oregon's adoption of federal taxable income rules
- 26 USCA § 106, exclusion of employer-paid health insurance
- 26 USCA § 152(a)(9), dependent qualification test

Cases:
- Tanner v. OHSU, 157 Or App 502, 971 P2d 435 (1998), public employers must provide equal benefits to same-sex domestic partners
- Tharalson v. Department of Revenue, 281 Or 9, 573 P2d 298 (1978), legislative latitude for economic tax classifications
- Savage v. Munn, 317 Or 283, 856 P2d 298 (1993)
- Nordlinger v. Hahn, 505 US 1 (1992), federal equal protection in tax classifications

Source

• Landing page: https://www.doj.state.or.us/oregon-department-of-justice/office-of-the-attorney-general/attorney-general-opinions/
• Original PDF: https://www.doj.state.or.us/wp-content/uploads/1999/05/op8268.pdf

Original opinion text

May 25, 1999
No. 8268

This opinion is in response to a question from The Honorable Jackie Taylor, State Representative, concerning state income
taxation of health insurance coverage of domestic partners.
QUESTION PRESENTED
Does the state violate Article I, section 20, of the Oregon Constitution by allowing a state income tax exemption
for health insurance coverage that employers provide for their employees' spouses without allowing a
corresponding exemption for health insurance coverage that employers provide for their employees' same-sex
domestic partners?
ANSWER GIVEN
Yes.
DISCUSSION
In Tanner v. OHSU, 157 Or App 502, 525, 971 P2d 435 (1998), the Oregon Court of Appeals held that Oregon public
employers violate Article I, section 20, of the Oregon Constitution(1) when they provide health insurance benefits to their
employees' spouses but do not provide the same benefits to their employees' same-sex domestic partners.(2) The court's
holding is premised on several conclusions. First, "unmarried homosexual couples" are a "class * * * clearly defined in
terms of ad hominem, personal and social characteristics." Id. at 524. Second, "homosexuals * * * have been and continue
to be the subject of adverse social and political stereotyping and prejudice." Id. Third, when benefits are granted to some
but denied to a class of persons defined by personal characteristics and subject to sterotyping and prejudice, the denial
must be based on genuine differences between class members and others who receive the benefit. Id. at 523. Fourth, no
justification for denying benefits based on homosexuality has been presented or can be envisioned. Id. at 524. Finally, the
state's proffered and allegedly "facially neutral" basis for discrimination – married versus unmarried employees – does not
withstand scrutiny when the state does not permit same-sex couples to marry.(3) Id. at 524-525.
The question presented in this opinion is whether, in light of Tanner, the state may apply different tax treatment for health
insurance coverage provided by employers for their employees' same-sex domestic partners than for their employees'
spouses. For federal tax purposes, the value of health insurance coverage for an employee's same-sex domestic partner is
includable in the employee's federal taxable income unless the domestic partner qualifies as the employee's "dependent."(4)
See Internal Revenue Service Private Letter Ruling 9850011, and authorities cited therein.(5) For Oregon residents, state
taxable income is equal to federal taxable income "with the modifications, additions and subtractions" provided in ORS
chapter 316. ORS 316.048. ORS chapter 316 contains no modification or subtraction for the value of employer-provided
health insurance coverage for employees' same-sex domestic partners. Accordingly, the value of such coverage is
includable in the employee's state taxable income unless the domestic partner qualifies as a dependent for federal tax
purposes.
In contrast, the value of employer-provided health insurance coverage for an employee's spouse is excluded from the
employee's federal taxable income even if the spouse does not qualify as a dependent for federal tax purposes. 26 USCA
§ 106 (West Supp 1998); see also 26 USCA §§ 104, 105. The value of such coverage is also excluded from the employee's
state taxable income. ORS 316.048.
The question is whether Article I, section 20, of the Oregon Constitution requires the state to provide equal tax treatment
for employer-provided health insurance coverage of same-sex domestic partners of employees and spouses of
employees.(6) Under Tanner, the state, when acting as a public employer, must provide the same health insurance
coverage to same-sex couples that it provides to married couples. We see no reason why, under Tanner, the state would
not have the same constitutional obligation when it acts in its capacity as a taxing authority. If the disparate provision of
health coverage is not justified by any genuine difference between the favored and disfavored classes, as Tanner holds,
157 Or App at 524, then we can see no reason why the court would be likely to conclude that the disparate tax treatment of
health insurance coverage would be justified.(7) We conclude therefore that, by allowing a state tax exemption for the
value of health insurance coverage that employers provide for their employees' spouses without allowing a corresponding
exemption for health insurance coverage that employers provide for their employees' same-sex domestic partners, the state
violates Article I, section 20, of the Oregon Constitution as interpreted by Tanner.(8)

HARDY MYERS
Attorney General
HM:VLM:AV:vlm/GEN15309

1. Article I, section 20, provides:
   No law shall be passed granting to any citizen or class of citizens privileges, or immunities, which, upon the same terms, shall not equally belong to all citizens.
2. The trial court judgment defined "domestic partners" as "homosexual persons not related by blood closer than first cousins who are not legally married, who have continuously lived together in an exclusive and loving relationship that they intend to maintain for the rest of their lives, who have joint financial accounts and joint financial responsibilities, who would be married to each other if Oregon law permitted it, who have no other domestic partners, and who are 18 years of age or older." Tanner v. OHSU, 157 Or App 502, 508, 971 P2d 435 (1998).
3. The Tanner court did not address the constitutional rights of unmarried opposite-sex domestic partners, and we express no opinion on that issue.
4. Generally, to qualify as an employee's dependent for federal tax purposes, a domestic partner must: (1) receive over half of his or her support for the taxable year from the employee, (2) have the employee's home as his or her principle abode and (3) be a member of the employee's household. 26 USCA § 152(a)(9) (West Supp 1998).
5. Internal Revenue Service (IRS) private letter rulings (PLRs) are not binding on the IRS and may not be cited as precedent. 26 USCA § 6110(j)(3). Nevertheless, they frequently are helpful in determining how the IRS is likely to rule on a particular issue. This is particularly true where, as on this issue, the IRS has repeatedly issued consistent rulings. See, e.g., PLR 199911012, PLR 9717018, PLR 9603011, PLR 9231062. We believe these rulings correctly interpret federal law.
6. Although the Internal Revenue Code provides the same disparate tax treatment, the Supremacy Clause of the United States Constitution preempts the application of Article I, section 20, to federal laws. US Const Art VI, cl 2.
7. We recognize that courts typically allow legislatures significant latitude in establishing categories of persons for purposes of taxation. See, e.g., Tharalson v. Department of Revenue, 281 Or 9, 573 P2d 298 (1978); Savage v. Munn, 317 Or 283, 856 P2d 298 (1993); Nordlinger v. Hahn, 505 US 1, 112 S Ct 2326, 120 L Ed2d 1 (1992). That latitude, however, applies to economic or geographic categories. Classifications based on traits such as race or religion that have historically subjected persons to bias, stereotype or other irrational treatment arouse judicial suspicion regardless of the benefit or burden that is granted or withheld. That suspicion may be overcome only if the classification reflects genuine and relevant differences between those who receive the privilege or immunity and those who do not.
8. We base our conclusion on the Oregon Court of Appeals' holding in Tanner. The Oregon Supreme Court has not addressed this issue, and we offer no opinion here on the likely outcome of that court's analysis. The question of what remedy would be available to rectify the disparate tax treatment of health insurance coverage, whether excluding the value of such coverage for an employee's same-sex domestic partner from the employee's state taxable income or eliminating the exclusion for the value of coverage provided for an employee's spouse, is outside the scope of this opinion.