‘Death tax’ changes would conform state to federal provisions

It’s said there’s nothing certain in life except death and taxes; but three bills before the House Taxes Committee Thursday would take some sting out of what’s known as the “death tax.”

Legislation over the previous biennium has chipped away at the state’s estate tax, especially as it relates to farms and small businesses; but Minnesota remains among a handful of states that levies the tax.

While not doing away with the tax, the trio of bills would conform the state to federal provisions, qualifying more heirs for a break. All were held over for possible inclusion in an omnibus tax bill.

HF82, sponsored by Rep. Jenifer Loon (R-Eden Prairie), HF148, sponsored by Rep. Bob Dettmer (R-Forest Lake), and HF96, sponsored by Rep. Tony Albright (R-Prior Lake), would change the state filing requirements so that an estate is required to file a Minnesota estate tax return only if it is required to file a federal estate tax return. It would also change the estate tax rate structure.

Loon said the tax affects a lot of middle class people who have planned well for their retirement and may not have taken time to work with an estate planner, and therefore their heirs are faced with the unplanned tax. “That is the point here. Our policy hits a lot of people who don’t consider themselves wealthy.”

“This is one that I get a little cranky about. I’ve never understood it,” said Committee Chair Rep. Greg Davids (R-Preston). “If you think about the death tax for just a second, it’s just not very Minnesota nice. Someone dies, and [after] they pay taxes once, and then we stick it to them again. … It is a double taxation, and it’s not very nice.”

But others argue, due to recent law changes, it is not double taxation as it is levied primarily on “paper investments.”

It’s not a tax on tangible assets, such as farm land, said Rep. Diane Loeffler (DFL-Mpls). “They made the right choices at the right time; they negotiated the right golden parachute.” She said these assets can be passed on without anyone ever paying taxes on the growth of the value.

A Department of Revenue analysis estimates that approximately 1,500 estates would file estate tax returns under current law for 2015, with about 800 owing tax. The bills would reduce the number of filers to approximately 160 for 2015, with fewer than 100 owing the tax.

The companion to HF82 is SF198, sponsored by Sen. Lyle Koenen (DFL-Clara City). It awaits action by the Senate Taxes Committee. This are no companions for the Dettmer or Albright bills.