BILL REQ. #:  S-2822.2 

READ FIRST TIME 06/03/13.   

     AN ACT Relating to the estate tax; amending RCW 83.100.020, 83.100.040, 83.100.047, and 83.100.047; creating new sections; providing an effective date; providing an expiration date; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   (1) In 2005, to address an unexpected significant loss of tax revenue resulting from the Estate of Hemphill decision and to provide additional funding for public education, the legislature enacted a stand-alone estate and transfer tax, effective May 17, 2005. The stand-alone estate and transfer tax applies to the transfer of property at death. By defining the term "transfer" to mean a "transfer as used in section 2001 of the internal revenue code," the legislature clearly expressed its intent that a "transfer" for purposes of determining the federal taxable estate is also a "transfer" for purposes of determining the Washington taxable estate.
     (2) In In re Estate of Bracken, 175 Wn.2d 549, 290 P.3d 99 (2012), the Washington supreme court narrowly construed the term "transfer" as defined in the Washington estate tax code.
     (3) The legislature finds that it is well established that the term "transfer" as used in the federal estate tax code is construed broadly and extends to the "shifting from one to another of any power or privilege incidental to the ownership or enjoyment of property" that occurs at death. Fernandez v. Wiener, 326 U.S. 340, 352 (1945).
     (4) The legislature further finds that: The Bracken decision held certain qualified terminable interest property (QTIP) of married couples was transferred without incurring Washington state estate tax liability, which: (a) Creates an inequity never intended by the legislature because unmarried individuals did not enjoy any similar opportunities to avoid or greatly reduce their potential Washington estate tax liability; and (b) may create disparate treatment between QTIP property and other property transferred between spouses that is eligible for the marital deduction.
     (5) Therefore, the legislature finds that it is necessary to reinstate the legislature's intended meaning when it enacted the estate tax, restore parity between married couples and unmarried individuals, restore parity between QTIP property and other property eligible for the marital deduction, and prevent the adverse fiscal impacts of the Bracken decision by reaffirming its intent that the term "transfer" as used in the Washington estate and transfer tax is to be given its broadest possible meaning consistent with established United States supreme court precedents, subject only to the limits and exceptions expressly provided by the legislature.
     (6) As curative, clarifying, and remedial, the legislature intends for sections 2 and 4 of this act to apply both prospectively and retroactively to estates of decedents dying on or after May 17, 2005.
     (7) The legislature, while finding it necessary to address the inequity and significant unanticipated fiscal impact created by the Bracken decision, also finds that the state's estate tax burdens family owned businesses, undermines job creation, and discourages savings and investment. Therefore, the legislature also intends by this act to increase the threshold for determining whether the tax applies to an estate, and also to decrease the tax rate to seventy-five percent of current rates by calendar year 2022.

Sec. 2   RCW 83.100.020 and 2013 c 23 s 341 are each amended to read as follows:
     ((As used in this chapter:
     (1))) Subject to the enactment into law of the 2013 amendments to RCW 83.100.040 in section 3 of this act, the 2013 amendments to RCW 83.100.047 in section 4 of this act, and the 2013 amendments to RCW 83.100.047 in section 5 of this act: The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1)(a) "Applicable exclusion amount" means:
     (i) One million five hundred thousand dollars for decedents dying before January 1, 2006;
     (ii) Two million dollars for estates of decedents dying on or after January 2006, and before January 1, 2015;
     (iii) Three million dollars for estates of decedents dying during the 2015 calendar year;
     (iv) Four million dollars for estates of decedents dying during the 2016 calendar year; and
     (v) For estates of decedents dying after December 31, 2016, the applicable exclusion amount equals the federal exclusion amount.
     (b) For purposes of this subsection "federal exclusion amount" means the estate's basic exclusion amount as determined under section 2010(c)(3) of the internal revenue code as existing on January 1, 2013.
     (2) "Decedent" means a deceased individual((;)).
     (((2))) (3) "Department" means the department of revenue, the director of that department, or any employee of the department exercising authority lawfully delegated to him or her by the director((;)).
     (((3))) (4) "Federal return" means any tax return required by chapter 11 of the internal revenue code((;)).
     (((4))) (5) "Federal tax" means a tax under chapter 11 of the internal revenue code((;)).
     (((5))) (6) "Gross estate" means "gross estate" as defined and used in section 2031 of the internal revenue code((;)).
     (((6))) (7) "Person" means any individual, estate, trust, receiver, cooperative association, club, corporation, company, firm, partnership, joint venture, syndicate, or other entity and, to the extent permitted by law, any federal, state, or other governmental unit or subdivision or agency, department, or instrumentality thereof((;)).
     (((7))) (8) "Person required to file the federal return" means any person required to file a return required by chapter 11 of the internal revenue code, such as the personal representative of an estate((;)).
     (((8))) (9) "Property" means property included in the gross estate((;)).
     (((9))) (10) "Resident" means a decedent who was domiciled in Washington at time of death((;)).
     (((10))) (11) "Taxpayer" means a person upon whom tax is imposed under this chapter, including an estate or a person liable for tax under RCW 83.100.120((;)).
     (((11))) (12) "Transfer" means "transfer" as used in section 2001 of the internal revenue code and includes any shifting upon death of the economic benefit in property or any power or legal privilege incidental to the ownership or enjoyment of property. However, "transfer" does not include a qualified heir disposing of an interest in property qualifying for a deduction under RCW 83.100.046 or ceasing to use the property for farming purposes((;)).
     (((12))) (13) "Internal revenue code" means, for the purposes of this chapter and RCW 83.110.010, the United States internal revenue code of 1986, as amended or renumbered as of January 1, 2005((;)).
     (((13))) (14) "Washington taxable estate" means the federal taxable estate((, less: (a) One million five hundred thousand dollars for decedents dying before January 1, 2006; and (b) two million dollars for decedents dying on or after January 1, 2006; and (c))) and includes, but is not limited to, the value of any property included in the gross estate under section 2044 of the internal revenue code, regardless of whether the decedent's interest in such property was acquired before May 17, 2005, (a) plus amounts required to be added to the Washington taxable estate under RCW 83.100.047, (b) less: (i) The applicable exclusion amount; (ii) the amount of any deduction allowed under RCW 83.100.046; and (iii) amounts allowed to be deducted from the Washington taxable estate under RCW 83.100.047.
     (((14))) (15) "Federal taxable estate" means the taxable estate as determined under chapter 11 of the internal revenue code without regard to: (a) The termination of the federal estate tax under section 2210 of the internal revenue code or any other provision of law, and (b) the deduction for state estate, inheritance, legacy, or succession taxes allowable under section 2058 of the internal revenue code.

Sec. 3   RCW 83.100.040 and 2010 c 106 s 234 are each amended to read as follows:
     Subject to the enactment into law of the 2013 amendments to RCW 83.100.020 in section 2 of this act, the 2013 amendments to RCW 83.100.047 in section 4 of this act, and the 2013 amendments to RCW 83.100.047 in section 5 of this act:
     (1) A tax in an amount computed as provided in this section is imposed on every transfer of property located in Washington. For the purposes of this section, any intangible property owned by a resident is located in Washington.
     (2)(a) Except as provided in (b) and (c) of this subsection, the amount of tax is the amount provided in the following table:

Sec. 4   RCW 83.100.047 and 2005 c 516 s 13 are each amended to read as follows:
     Subject to the enactment into law of the 2013 amendments to RCW 83.100.020 in section 2 of this act and the 2013 amendments to RCW 83.100.040 in section 3 of this act:
     (1) If the federal taxable estate on the federal return is determined by making an election under section 2056 or 2056A of the internal revenue code, or if no federal return is required to be filed, the department may provide by rule for a separate election on the Washington return, consistent with section 2056 or 2056A of the internal revenue code, for the purpose of determining the amount of tax due under this chapter. The election ((shall be)) is binding on the estate and the beneficiaries, consistent with the internal revenue code. All other elections or valuations on the Washington return ((shall)) must be made in a manner consistent with the federal return, if a federal return is required, and such rules as the department may provide.
     (2) Amounts deducted for federal income tax purposes under section 642(g) of the internal revenue code of 1986((, shall)) are not ((be)) allowed as deductions in computing the amount of tax due under this chapter.
     (3) Notwithstanding any department rule, if a taxpayer makes an election consistent with section 2056 of the internal revenue code as permitted under this section, the taxpayer's Washington taxable estate, and the surviving spouse's Washington taxable estate, must be adjusted as follows:
     (a) For the taxpayer that made the election, any amount deducted by reason of section 2056(b)(7) of the internal revenue code is added to, and the value of property for which a Washington election under this section was made is deducted from, the Washington taxable estate.
     (b) For the estate of the surviving spouse, the amount included in the estate's gross estate pursuant to section 2044 (a) and (b)(1)(A) of the internal revenue code is deducted from, and the value of any property for which an election under this section was previously made is added to, the Washington taxable estate.

Sec. 5   RCW 83.100.047 and 2009 c 521 s 192 are each amended to read as follows:
     Subject to the enactment into law of the 2013 amendments to RCW 83.100.020 in section 2 of this act and the 2013 amendments to RCW 83.100.040 in section 3 of this act:
     (1)(a) If the federal taxable estate on the federal return is determined by making an election under section 2056 or 2056A of the internal revenue code, or if no federal return is required to be filed, the department may provide by rule for a separate election on the Washington return, consistent with section 2056 or 2056A of the internal revenue code and (b) of this subsection, for the purpose of determining the amount of tax due under this chapter. The election ((shall be)) is binding on the estate and the beneficiaries, consistent with the internal revenue code and (b) of this subsection. All other elections or valuations on the Washington return ((shall)) must be made in a manner consistent with the federal return, if a federal return is required, and such rules as the department may provide.
     (b) The department ((shall)) must provide by rule that a state registered domestic partner is deemed to be a surviving spouse and entitled to a deduction from the Washington taxable estate for any interest passing from the decedent to his or her domestic partner, consistent with section 2056 or 2056A of the internal revenue code but regardless of whether such interest would be deductible from the federal gross estate under section 2056 or 2056A of the internal revenue code.
     (2) Amounts deducted for federal income tax purposes under section 642(g) of the internal revenue code of 1986 ((shall)) are not ((be)) allowed as deductions in computing the amount of tax due under this chapter.
     (3) Notwithstanding any department rule, if a taxpayer makes an election consistent with section 2056 of the internal revenue code as permitted under this section, the taxpayer's Washington taxable estate, and the surviving spouse's Washington taxable estate, must be adjusted as follows:
     (a) For the taxpayer that made the election, any amount deducted by reason of section 2056(b)(7) of the internal revenue code is added to, and the value of property for which a Washington election under this section was made is deducted from, the Washington taxable estate.
     (b) For the estate of the surviving spouse, the amount included in the estate's gross estate pursuant to section 2044 (a) and (b)(1)(A) of the internal revenue code is deducted from, and the value of any property for which an election under this section was previously made is added to, the Washington taxable estate.

NEW SECTION.  Sec. 6   Sections 2 and 4 of this act apply both prospectively and retroactively to all estates of decedents dying on or after May 17, 2005.

NEW SECTION.  Sec. 7   This act does not affect any final judgment, no longer subject to appeal, entered by a court of competent jurisdiction before the effective date of this section.

NEW SECTION.  Sec. 8   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 9   Section 4 of this act expires January 1, 2014.

NEW SECTION.  Sec. 10   Section 5 of this act takes effect January 1, 2014.

NEW SECTION.  Sec. 11   Except for section 5 of this act, this act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.