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The phaseout of the federal state death tax credit.

Many states are changing estate and inheritance tax rules in response to the phase-out of the Federal credit for state death taxes, the increased unified credit and lower Federal rates. Part two of this article focuses on state law changes in effect for 2004 and beyond


Death tax revenues of many states are declining as a result of the phaseout of the Federal state death tax credit (SDTC) and the credit for state generation-skipping transfer (GST) taxes. Some states are changing their estate or inheritance tax laws to avoid or reduce the effect of Federal changes. Part 1 of this article, in the February 2004 issue, summarized the Federal changes affecting the SDTC and state death tax revenues. Part II, below, focuses on the changes being made or proposed at the state level in response to the Federal phaseout.

State Revenue Reduction

Sec. 2011 allows a state death tax credit on the Federal estate return, limited to the excess of the gross estate tax liability, over the unified credit under Sec. 2010. As explained in Part I, a change that reduces the gross estate tax liability or increases the unified credit effectively reduces the limit on the SDTC. Thus, death tax revenues of states with death taxes tied to the amount of the Federal credit are being reduced, because of (1) a reduction in the top Federal estate tax rates, (2) an increase in the unified credit and (3) the phaseout of the Federal SDTC and state GST taxes.

Pre-EGTRRA Changes

Congress had scheduled increases in the unified credit starting in 1998. Several states also made changes before 2001, enabling them to avoid the effect of the Economic Growth and Tax Revenue Reconciliation Act of 2001 (EGTRRA). For example, Kansas imposed a death tax equal to the credit that would have been allowed under Federal law as it existed on Dec. 31, 1997. (16) Thus, Kansas avoided the effect of the increases in the Federal unified credit that became effective in 1998, and is not affected by the EGTRRA. New York bases its state death tax on the credit computed under the 1998 Internal Revenue Code (IRC). (17) (In this article, some state law is described as having an "IRC reference date" of a given year.)

In contrast, some states began eliminating death taxes prior to the EGTRRA. For example, Montana repealed its inheritance tax in 2000; (18) Louisiana's inheritance tax rates are being reduced each year. For deaths occurring after 2004, the Louisiana rates are reduced by 80%; the tax is eliminated for deaths occurring after June 30, 2004, when certain actions are taken. (19)

Connecticut has a succession tax and an estate tax. The succession tax was scheduled to be repealed in 2006, but the General Assembly has delayed the repeal. (20)

Administrative Policy

In some cases, the state revenue department interprets the state death tax law to be consistent with Federal law. For example, until this year, the Oregon estate tax law bad an IRC reference date of 1997, but the tax was not collected unless an estate filed and paid Federal estate taxes. Thus, Oregon law was not tied to the state death tax phaseout; however, by administrative practice, the state has been treated as being effectively connected to the Federal credit. (21) On Sept. 24, 2003, the Governor of Oregon signed a hill that conforms the state's estate tax to changes in the IRC through January 2000. (22)

Constitutional Limits

Some state constitutions prohibit the levying of a death tax in excess of the amount allowed as a credit on the Federal estate tax return. For example, the Nevada Constitution provides:

The legislature may provide by law for the taxation of estates taxed by the United States, but only to the extent of any credit allowed by Federal law for the payment of the state tax and only for the purpose of education, to be divided between the common schools and the state university for their support and maintenance. The combined amount of these Federal and state taxes may not exceed the estate tax which would be imposed by Federal law alone. (23)

States with such constitutional limits cannot adjust their tax systems to maintain their current levels of death tax collections.

State Tax Systems

The post-EGTRRA law is generally described as coupled (pure pickup), decoupled, fixed, separate or none. Example 1 below shows examples of pick-up tax systems, Exhibit 2 on p. 150 contains examples of combination approaches and Exhibit 3 on p. 151 has information on the current state systems.

Pick-Up Taxes

Before the EGTRRA, (24) some form of pick-up estate tax was used by all states and the District of Columbia, including pure pick-up taxes, fixed taxes and sponge taxes. Before the EGTRRA, 25 states had pure pick-up GST taxes; two had GST taxes with a fixed IRC reference date.

A "pure pick-up tax" is a single estate tax equal to the SDTC allowed on the Federal estate tax return, when the decedent's property is located entirely in one state. If the decedent's property is located in more than one state, the affected states share the credit based on the relative amounts of property in each state. Some variations in state pick-up death taxes are illustrated in Exhibit 1. Taxes in the three groups of state death tax structures shown in Exhibit 1 (A, B and C) are often called pick-up taxes. However, those described in Group A are pure pick-up taxes, because the state death tax equals the Federal SDTC.

Coupled Tax

In this article, a "coupled tax" describes a tax in effect after the EGTRRA with the characteristics of a pure pick up. A coupled tax imposes a state death tax equal to the available Federal credit and disappears as the Federal credit disappears. Connecticut is an example of a state with an inheritance tax and a state GST tax equal to the amount allowed as a Federal credit under the IRC in effect on the date of the decedent's death. (25) Connecticut death taxes are coupled taxes. Arizona imposes an estate tax equal to the Federal credit and has updated its IRC reference date to Jan. 1, 2003; thus, the Arizona estate tax is also a coupled tax. (26)

As explained in Part I of this article, a fully coupled state will be affected by three changes at the Federal level: (1) lower rates, (2) larger applicable exemption amount (AEA) (which dictates a larger unified credit) and (3) phaseout of the Federal SDTC and the credit for state GST taxes. Exhibit 3 identifies 26 states with estate tax laws coupled with the Federal estate tax. Twenty-seven states had either pick-up GST taxes or GST taxes with a pre EGTRRA IRC reference date (there are only 24 such states after the EGTRRA (Illinois and Nebraska have decoupled their GST taxes and Kansas has repealed its GST tax)).

When the Federal SDTC is completely phased out in 2005, a coupled state will no longer have a state death tax. Of course, a separate inheritance tax not coupled with the Federal law will continue to generate revenue. Likewise, a state pick-up GST tax that remains fully coupled with Federal law will disappear after 2004, when the Federal GST tax credit for payment of a state GST tax expires.

Sponge Tax

In this article, "sponge tax" is used to describe taxes in Groups B and C of Exhibit 1. A sponge tax soaks up sufficient additional tax to fully use the Federal credit. Tennessee describes its sponge tax as follows:

The purpose of the Tennessee estate tax is to supplement the inheritance tax to assure the state secures a total tax at least equal to the "State Death Tax Credit" allowed by the Federal government on the Federal Estate Tax Return pursuant to I.R.C. Section 2011. If the "State Death Tax Credit" exceeds the inheritance tax, the difference is the Tennessee Estate Tax. (27)

After the EGTRRA, "sponge tax" applies to a tax that supplements another estate or inheritance tax as needed to assure full benefit of the Federal credit; it will be phased out as the Federal credit is phased out, unless it has a fixed IRC reference date. Exhibit 3 shows that after the EGTRRA, there are seven states with sponge taxes.

Fixed Tax

In this article, an estate tax equal to the Federal credit using an IRC reference date in a prior year is referred to as a "Fixed" tax, with the month and year reference date indicated in parenthesis. For example, Minnesota's estate tax is equal to the Federal credit with an IRC reference date of Dec. 31, 2000. (28) In Exhibit 3, the Minnesota estate tax is listed as "Fixed (Dec. 00)." A death tax law of this type can only be coupled if the state updates the IRC reference date.

Separate Taxes

Before the EGTRRA, 33 states had a separate inheritance tax not tied to the Federal SDTC, in addition to an estate tax that functioned as a sponge tax: Connecticut, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Nebraska, New Hampshire, New Jersey, Oklahoma, Pennsylvania and Tennessee. In addition, Ohio had two estate taxes, with the second one serving as a sponge tax.

Decoupled States

Before the EGTRRA, some states had decoupled as to the scheduled increases in the Federal unified credit, to avoid a decrease in state death taxes tied to the Federal credit. The EGTRRA accelerated the rate of decrease in the Federal estate tax. Some states took action to shield estate and inheritance tax collections from the EGTRRA's effect, by choosing a pre-2002 IRC reference date. For example, the Massachusetts estate tax, for dates of death occur ring after 2002, is computed with an IRC reference date of Dec. 31,2000. The Massachusetts tax is listed as "Fixed (Dec. 00)" in Exhibit 3.29 The Massachusetts tax will be at least as much as the current Federal credit available and possibly more, because the allowable SDTC would have been as high or higher under prior Federal law.

Exhibit 3, Column 4, shows that 18 states have death tax systems that are either decoupled from the Federal law, or have an old IRC reference date. Those states are identified as "Decoupled" or "Fixed" Two states have decoupled the state GST tax; three states have the GST tax with an old IRC reference date.

Interpreting, for state law purposes, fixed IRC reference dates in a state law can be a challenge. California recently passed a bill that updated the IRC reference date in die state tax law to 2001. However, the bill specifically excluded the estate tax and the GST tax from its provisions. (30) The California death taxes are coupled, because the applicable state sections make no reference to a specific IRC reference date. (31)

Partial Decoupling

Maryland and Rhode Island illustrate contrasting ways of using fixed IR.C reference dates. As seen in Exhibit 2, the Maryland estate tax is decoupled; the state is decoupled from the phaseout of the Federal SDTC. However, the EGTRRA reduction in tax rates and increases in the unified credit apply for Maryland estate tax purposes. (32) In Rhode Island, if death occurs on or after Jan. 1, 2002, the death tax equals the maximum SDTC allowed by Sec. 2011 as in effect on Jan. 1, 2001, provided, however, that any scheduled increase in the unified credit provided in Sec. 2010 in effect on Jan. 1, 2001, or thereafter shall not apply. (33) Maryland and Rhode Island are effectively using two different IRC reference dates (pre- and post-EGTRRA dates). They are classified as "decoupled" in Exhibit 3, because they do not use a single IRC reference date.

Other Effects

State Computations

A state with a pure pick-up tax is not concerned about the detailed computations for gross estate, taxable estate, etc., when all of a decedent's property is located within the state. The pick-up tax is determined solely by reference to the credit shown on the Federal estate tax return. When the decedent owned property in more than one state, it is necessary to pro-rate the Federal credit to the applicable states using a formula that takes into account the percentage of property owned in each. That computation may be based on an allocation formula that takes into account the gross estate on the Federal estate tax return and the gross assets located in the different states.

When a state decouples from the Federal credit, it is necessary to compute gross estate, taxable estate, etc., and report such amounts on the state return. If the state fixes its estate tax to an older version of the IP,.C (i.e., pre-EGTRRA), such computations will need to be based on the old IRC, except when the state adopts a special rule inconsistent with the IRC. After the Federal credit is replaced by a state death tax deduction, some states may have to establish an independent system for computing the state death tax.

Deduction Replaces Credit

The current Federal SDTC provides a convenient way for states to collect a "pure pick-up" death tax without imposing a tax burden on its citizens, because there is a corresponding reduction in the payment to the Federal government. When a deduction at the Federal level replaces the credit in 2005, a state death tax will be only partially offset by Federal death tax savings. The Federal tax savings will equal the state death tax, multiplied by the marginal Federal tax rate.

Alabama law (34) provides that the state estate tax equals the maximum amount allowed as a credit or deduction on the Federal return. Conceivably, this law could be interpreted to require a 100% state estate tax rate, because the Federal law places no limit on the deduction for estate taxes after 2004. However, the state Department of Revenue interprets this to mean that the state death tax is limited to the allowable credit.

State Gift Tax Laws

Only four states impose a gift tax; those taxes were imposed before the EGTRRA. Those states are Connecticut, (35) Louisiana. (36) North Carolina (37) and Tennessee. (38) Wisconsin eliminated its gift tax in 1992. New York repealed its gift tax effective Jan. 1, 2000. (39)

There appears to be limited coupling of state gift taxes with the IRC. For example, the North Carolina gift tax is coupled with changes in the Federal annual gift tax exclusion. (40) Some states have a gift tax that applies to gifts in contemplation of death. Because there is no Federal credit for state gift taxes, the affect of Federal changes are not expected to affect state gift taxes significantly. States that do not have gift taxes provide an incentive for their citizens to make lifetime gifts to avoid the state estate or inheritance tax.

State Filing Requirements

Many "pick-up" states have set their estate tax filing requirement equal to the Federal requirement, because no state death tax was due unless a Federal return was required. States with pre-EGTRRA IRC reference dates will have lower filing thresholds than those applicable to the Federal estate tax.

State Collections

In the past, the Federal government was the predominant collector of death taxes. States have shared Federal revenues to some extent through the SDTC; some states have imposed separate estate or inheritance taxes. The scheduled elimination of the Federal estate tax after 2010 does not eliminate the need for death tax planning, because many states are set to continue collecting state death taxes beyond that date.


There are continuing efforts in many states to pass legislation changing the death tax laws. Some of the proposals would eliminate the death tax and others would decouple it to main rain that source of revenue. Tax advisers should keep up-to-date on the latest changes in both state and Federal law. Exhibit 4 on p. 152 summarizes state death tax developments in selected states.
Exhibit 1: Pick-up tax--variations in state death tax structures

Group Examples Citation First death tax

A Texas TX Tax Code No inheritance
 Ann. [section] 211.051 tax

B Kentucky KY Rev. Stat. Inheritance tax
 Ann. [section] 140.130

C Ohio OH Rev. Code Estate tax
 Ann. [section] 31.02,

Group Examples Second death tax Result

A Texas Estate tax equal State death taxes
 to the SDTC under equal to Federal
 current Federal credit--no more,
 law. no less.

B Kentucky Estate tax equal State death tax
 to SDTC under equal to (or
 current law, less greater than)
 inheritance tax. Federal credit

C Ohio Additional estate State death tax
 tax, when needed equal to (or
 to assure full use of greater than)
 SDTC under current Federal credit
 law. available.

Exhibit 2: Some alternative combinations of coupling estate taxes

State (IRC reference date) State low cite

Illinois (2001) 35 ILCS 405/2
Maryland MD Code Ann. Tax [section] 7-309
Rhode Island (2001) RI Gen. Laws [section] 44-22-1.1

 Reduction in top
 AEA Federal estate
 (unified credit) tax rates

State (IRC reference date) Coupled? Coupled?

Illinois (2001) Partly No
Maryland Yes Yes
Rhode Island (2001) No No

 Phaseout of state
 death tax credit

State (IRC reference date) Coupled?

Illinois (2001) No
Maryland No
Rhode Island (2001) No

Exhibit 3: Summary of death tax laws

State Statute

Alabama Ala. Code [subsection] 40-15-2, -15A-2
Alaska Ak. Stat. [section] 43.31.011
Arizona Az. Rev. Stat. Ann. [subsection] 42-1001,
 -4051, -4102
Arkansas Ark. Code Ann. [section] 26-59-106
California Rev. & Tax Code [subsection] 13301, 13302,
Colorado Co. Rev. Stat. [subsection] 39-23.5-102-106
Connecticut Ct. Gen. Stat. [subsection] 12-344, -390b,
Delaware 30 De. Code [subsection] 1501, 1503
District of Columbia District of Columbia Code [section] 47-3701
Florida Title XIV, Chapter 198.02, 138.021
Georgia Ga. Code [subsection] 48-12-2(b), 48-1-2(14)
Hawaii Hi. Rev. Stats. (HRS) [section] 236D-3
Idaho Id. Stats. 14-401(3) 14-403, 63-3004(a)
Illinois 35 ILCS [section] 405/3, 405/4
Indiana Ind. Code [section] 6-4.1-2-1, -11-2, -11.5-7
Iowa Iowa Code [subsection] 454, 451.2, 450A.2
Kansas Ks. Stats. Ann. [section] 79-15, 101, 102 and
Kentucky Ky. Rev. Stats. Ann. Title XI, [section]
Louisiana La. Rev. Stats. [subsection] 47:2401, 2432
Maine M.R.S.A. [section] 4062
Maryland Md. Code Ann. [subsection] 7-304, -309 and
Massachusetts Ma. Gen. Laws, Title IX-65C, [section] 2A
Michigan MCLS [section] 205.232 .233, .256
Minnesota Mn. Stat. [section] 291.03
Mississippi Ms. Code [section] 27-9-5
Missouri Mo. Rev. Slat. [subsection] 145.001, .009,
 .995, .1000
Montana Mt. Code Ann. [subsection] 2003-72-16-905,
Nebraska Ne, Stats. 77-2001, 2101.01, .02
Nevada Nv. Rev. Stats. [subsection] 375A.100,
New Hampshire N.H, Rev. Stat. Ann. 77-A:1, 87:1
New Jersey N.J. Stat. Ann. [section] 54:34-2
New Mexico N.M. Stat. Ann. [section] 7-7-3
New York NYS Tax Law [subsection] 951 952 1022
North Carolina N.C. Gen. Stat. [section] 105-32.2, -32.7 and
North Dakota N.D. Code [section] 57-37.104
Ohio Oh. Rev. Code Ann. [section] 5731.02, .18,
Oklahoma Ok. Stat. 68 [subsection] 802-804
Oregon Or. Rev. Stats. [section] 118.010
Pennsylvania Pa. Stats. 72 P.S. 9102
Rhode Island R.I. Gen. Laws [subsection] 44-22-1.1,
South Carolina S.C. Code Ann. [section] 12-6-40, -16-10,
 510, 710
South Dakota S.D. Code [section] 10-40A-2
Tennessee Ch 8, 2-67-8-204, 3-67-8-303, 6-67-8-603
Texas Tx. Tax Code Ann. [subsection] 211.001, .051,
Utah Ut. Code-Title 59-Chap.11-103
Vermont Vt. Stats. Title 32, Chapter 190, [section]
Virginia Va. Code Ann [subsection] 58.1-901, 902(4)
 and 936
Washington Wa. Rev. Code [subsection] 83.100,020(15),
 .030 and .045
West Virginia W.V. Code Ann. [section] 11-11-3
Wisconsin Wi. Stat, [subsection] 72.01(11m), .02
Wyoming Wy. Stat. 39-19-101, -111

 in an Exhibit
State or in text

Alabama In text
California Exhibit 4
Connecticut Exhibit 4
District of Columbia Exhibit 4
Illinois Exhibit 2, 4
Kentucky Exhibit 1
Maine Exhibit 4
Maryland Exhibit 2, 4
Massachusetts In text
Minnesota Exhibit 4
Mississippi In text
Montana In text
Nebraska Exhibit 4
Nevada In text
New Hampshire
New Jersey Exhibit 4
New Mexico
New York Exhibit 4
North Carolina Exhibit 4
North Dakota
Ohio Exhibit 4
Oregon In text
Pennsylvania In text
Rhode Island In text
South Carolina
South Dakota
Tennessee In text
Texas Exhibit 1
Virginia Exhibit 4
West Virginia Exhibit 4

 Post-EGTRRA (current) tax law

State Estate Inheritance GST

Alabama Coupled None Coupled
Alaska Coupled None None
Arizona Coupled None Coupled
Arkansas Coupled None None
California Coupled None Coupled
Colorado Coupled None Coupled
Connecticut Coupled Separate Coupled
Delaware Coupled None None
District of Columbia Fixed (Jan. 01) None None
Florida Coupled None Coupled
Georgia Coupled. None None
Hawaii Coupled None Coupled
Idaho Coupled None None
Illinois Decoupled None Decoupled
Indiana Sponge Separate Coupled
Iowa Sponge Separate Coupled
Kansas Fixed (Jan. 97) None None
Kentucky Sponge Separate None
Louisiana Sponge Separate None
Maine Decoupled None None
Maryland Decoupled Separate Coupled
Massachusetts Fixed (Dec. 00) None Fixed (Dec. 00)
Michigan Coupled None Coupled
Minnesota Fixed (Dec. 00) None None
Mississippi Coupled None None
Missouri Coupled None Coupled
Montana Coupled None Coupled
Nebraska Decoupled Separate Decoupled
Nevada Coupled Coupled None
New Hampshire Coupled Coupled None
New Jersey Fixed (Dec. 01) Separate None
New Mexico Coupled None None
New York Fixed (Jul. 98) None Fixed (Jul. 98)
North Carolina Decoupled None Coupled
North Dakota Coupled None None
Ohio Sponge None Coupled
Oklahoma Sponge Separate None
Oregon Fixed (Dec. 00) None None
Pennsylvania Sponge Separate None
Rhode Island Decoupled None Coupled
South Carolina Coupled None Coupled
South Dakota Coupled None None
Tennessee Sponge Separate Coupled
Texas Coupled None Coupled
Utah Coupled None None
Vermont Fixed (Jan. 01) None None
Virginia Decoupled None Coupled
Washington Fixed (Jan. 01) None Fixed (Jan. 01)
West Virginia Decoupled None None
Wisconsin Fixed (Dec. 00) None None
Wyoming Coupled None None

Exhibit 4: Summary of death tax developments in selected states

California: The estate tax is the maximum allowable SDTC for property located in California. "In no event shall the estate tax ... result in a total death tax liability to the State of California and the United States in excess of the death tax liability to the United Slates which would result if this section were not in effect." A GST tax is imposed on every GST in an amount equal to the allowable credit for state GST taxes under IRC Sec. 2604; CA Rev. & Tax Code [subsection] 1301, 13302, 16710.

Connecticut: The estate tax currently follows the Federal credit in effect under the EGTTRA; CT Gen. Stat. Ann. [section] 12-391. Proposed Senate Bill No. 611 would decouple Connecticut from Federal law and impose an estate tax equal to the Federal credit in effect on Jan. 1, 2001. Connecticut imposes a succession tax on property that passes from a decedent to a beneficiary. The tax roles range between 11% and 20% depending on the value of the properly transferred and the relationship of the recipient to the transferor (i.e., spouse, child, parent end grandparent are exempt from the tax). The Connecticut succession tax was scheduled to be repealed for decedents dying on or after Jan. 1, 2006, but the General Assembly has delayed; CT Gen. Stat. [section] 12-344(d) end re), as amended by 2003 CT Pub. Acts 1, [section] 94. Connecticut also has coupled the GST tax.

District of Columbia: Prior to passage of the EGTRRA, the District of Columbia imposed n pick-up tax equal to the maximum SDTC allowed under Federal law, but not less than the Federal credit us of Jan. 1, 1986; DC Code [sections] 47-3701(4). By administrative practice, post-1998 increases in the unified credit have been allowed. The Inheritance and Estate Tax Act of 2002 was enacted on Oct. 3, 2002 and became effective on March 25, 2003. Under DC Cede [section] 47-3701, the estate tax equals the maximum credit under IRC Set. 2011 as of Jan. 1, 2001 ($675,000).

Illinois: The Illinois legislature passed a bill that decouples the estate and GST taxes from the current available SDTC. The new law freezes these taxes at levels equal to amounts provided in the IRC as of Dec. 31, 2001 for persons dying after 2002. Illinois will, however, recognize the increases in the Federal AEA until it reaches $2 million in 2005. The Illinois exclusion will not continue to increase after that point, as does the Federal exclusion. Illinois does not impose a succession tax; 35 ILCS 405/2.

Maine: For calendar years 2003 and 2004, the estate tax unified credit is reduced and the SDTC calculation is reset to pre-EGTRRA levels. The reduced unified credit (from $345,800 to $229,800 in 2003; from $555,800 to $287,300 in 2004) lowers the threshold of taxability and increases the upper tax limit for estates with Maine property; ME Rev. Stet. Ann. [section] 4062.

Maryland: The Maryland estate tax is partially decoupled from the changes made by the EGTRRA. Maryland decoupled with respect to the phaseout of the Federal SDTC. However, the increases in the unified credit under the EGTRRA apply for the purposes of Maryland estate tax; MD Code Ann. Tax [section] 7-309. The Maryland GST tax is coupled with Federal law.

Minnesota: Minnesota has on estate tax, as provided in MN Stat. 291.03, that is the portion of the maximum Federal SDTC that the "Minnesota grass estate" bears to the value of the Federal gross estate (prior law). The 1st Sp. Sess. Chp. 5, Art. 10, Sec. 10, changed the IRC reference date in the Minnesota estate law to Dec. 31, 2000. This law imposes a tax equal to the Federal credit as of Dec. 31, 2000 and was effective as of July 1, 2001. Minnesota does not impose a succession or GST tax.

Nebraska: Nebraska estate tax was a pure pick-up tax before the EGTRRA. Under L.B. 905, enacted April 18, 2002, [section] 77-2101 was amended to partially decouple the estate tax from the IRC by imposing an estate tax based on the lax credit table in IRC Sec. 2011. Thus, its estate taxes range from 0.8% to 16% on estates beginning at $40,000. The new law also excludes Federal taxable estates under S1 million, effective for decedents dying and transfers made after 2002. Nebraska also imposes an inheritance tax, with rates varying from 1% to 18%. Before the EGTRRA, Nebraska imposed a GST tax equal to the maximum Federal credit far state GST taxes. Under L.B. 905, enacted April 18, 2002, [section] 77-2101.02 imposes a GST tax on GST transfers at 16% of the Nebraska taxable transfer.

New Jersey: P.L. 2002, c. 31, amended the estate tax and preserved it as it existed prior to 2002. The tax is either: (1) the maximum SOTC that would have been allowable had the decedent died on Dec. 31, 2001 or (2) an amount determined pursuant to a simplified tax system us may be prescribed by the Director of the Division of Taxation. Under NJ Stat. Ann. [section] 54:38-1(c), a simplified tax system is a tax system based on a $675,000 AEA. The estate tax is reduced by the inheritance tax paid. New Jersey imposes an inheritance tax on properly that passes from e decedent to o beneficiary. The tax rates range between 11% and 16%, depending on the relationship of the transferee to the deceased and the amount transferred (parents, grandparents, children, stepchildren and grandchildren are exempt); NJ Stat. Ann. [section] 54:34-2.

New York: For estates of decedents dying before February 2000, New York imposed an estate tax at graduated rates. For estates of decedents dying after Jan. 31, 2000, New York imposes an estate and o GST tax bused an the Federal credits computed with an IRC reference date of July 22, 1998; NYS Tax L. [subsection 1951,952, 1022.

North Carolina: North Carolina's estate tax was a pure pick-up tax before the EGTRRA. North Carolina's exemption limits have been conformed to the Federal exemption limit, but the state does not recognize the SDTC phaseout; see NC Gee. Stat. 105-32.2. After June 30, 2005, the maximum credit reverts to the IRC Sec. 2011 amount under the EGTRRA. If no additional changes are enacted, the estate tax will be eliminated in 2005. NC Gen. Stat. 105-188(d) (for the girl tax) was rewritten to provide that "the annual exclusion amount is equal to the Federal inflation-adjusted exclusion amount provided in Sec. 2503(b) of the Code."

Ohio: Ohio has two estate taxes: an independent estate tax and a pick-up tax. Graduated rates range up to $23,600, plus 7% of any amount in excess of $500,000. Ohio also has an "additional tax," a pick-up tax equal to the maximum allowable Federal SDTC. OH. H.B. 114 repeals the estate tax after 2005. Ohio has a GST tax in the amount of the Federal credit; OH Rev. Code Ann. [subsection] 5731.02, .18, .181.

Virginia: Virginia imposes o fixed pick-up tax equal to the Federal credit as of Jan. 1, 1978; VA Cede Ann. [section] 58.1-901 and -902(A). However, increases in the AEA since that time have been allowed. Under current law, the Virginia estate tax is coupled with the Federal estate tax with respect to the AEA, but is decoupled as to the SDTC phaseout;, Va. Code Ann. [section] 58.1-901. After 2005, Virginia residents will continue to pay estate taxes bused on the pre-EGTRRA Federal SDTC. Virginia imposes a GST tax equal to the credit allowed under IRC Sec. 2604; VA Code Ann. [section] 58.1-936.

West Virginia: West Virginia estate tax is the maximum allowable Federal SDTC. Such amount may not be lower than the Federal credit allowable under IRC Secs. 2011, 2102 and 2604 as in effect on Jan. 1, 1985. An amendment by 2002 WV SB 661, effective June 9, 2002, provides that, for decedents dying after Dec. 31, 2001, the estate tax may in no event be less than the Federal credit allowable by IRC Secs. 2011, 2102 and 2602 as amended by the EGTRRA. After 2004, there will be no estate tax. There is no GST or gift tax; WV Code [section] 11-11-3.

(16) KS Stat. Ann. [section] 79-15, 101.

(17) NYS Tax L. [section] 951.

(18) Legislative Referendum 116 (approved 11/7/2000).

(19) See LA Rev. Stat. [section] 47:2401.

(20) CT Gen. Stat. [section] 12-344(d), (c), as amended by 2003 CT Pub. Acts 1, [section] 94.

(21) OR Legislative Revenue Office--Research Brief November 2001.

(22) OR HB 3072.

(23) Constitution of the State of Nevada, Article 10, Section 4.

(24) See Duncan, "State Responses to Estate Tax Changes Enacted as par: of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)," State Tax Today, Doc. 2002-26344 (11/26/02).

(25) CT Gen. Star. Ann. [subsection] 12-390A,-391.

(26) AZ Rev. Stat. [section] 42-1001.

(27) Instructions for Tennessee Inheritance Tax Return, p. 3.

(28) MN Stat. [section] 291.03.

(29) MA Gen. L., Ch. 65C [section] 2A.

(30) CA SB [section] 1065 (signed 9/11/03).

(31) CA Rev. & Tax Code [subsection] 13301, 13302, 16710.

(32) MD Code Ann. [section] 7-309.

(33) RI Gen. Laws [section] 44-22-11.

(34) AL Code [section] 40-15-2.

(35) CT Gen. Stat. Ann. [section] 12-640.

(36) LA Rev. Stat. [section] 47:1201.

(37) NC Gen. Stat. [section] 105-188.

(38) TN Code 67-8-101.

(39) NYS Dep't of Tax'n and Fin., TSB-M-97(8)M (12/31/97)

(40) NC Gen. Stat. [section] 105-118(d).

Editor's note: Dr Godfrey is Co-Chair of the SDTC Task Force of the AICPA Tax Division's Trust, Estate, and Gift Tax Technical Resource Panel (TRP).

Author's note: The author expresses appreciation to the other Task Force members for their research and editorial assistance: Brian T. Whitlock (Co-Chair), Evelyn M. Capassakis (TRP Chair), Roby Saywers (TRP Vice Chair), Robert A. Blume, Barbara A. Bond, Carol Ann Cantrell, Mary Delman, Barbara A. Jones, Robert L. Perez, Robert M. Pielech, Steven A. Thorne, Russell Sanders and Eileen Sherr (AICPA Technical Manager)


* Several states decoupled from the Federal estate tax before the EGTRRA, enabling them to avoid its effect; some states eliminated death taxes entirely.

* In general, pure pick-up taxes coupled with the Federal SDTC will disappear in 2005, unless they are tied to the credit as in effect for a prior year.

* When the Federal SDTC is replaced by a deduction, the focus on reporting and collection of state death taxes will shift to the state.

Howard Godfrey, Ph.D., CPA

Professor of Accounting

University of North Carolina Charlotte

Charlotte, NC
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Title Annotation:part 2
Author:Godfrey, Howard
Publication:The Tax Adviser
Date:Mar 1, 2004
Previous Article:IRS further clarifies innocent spouse equitable relief.
Next Article:Current corporate income tax developments.

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