SENATE BILL REPORT

HB 1371

BYRepresentatives Appelwick and Dellwo

Revising transfer tax provisions.

House Committe on Ways & Means/Revenue

Senate Committee on Ways & Means

Senate Hearing Date(s):February 25, 1988; February 26, 1988

Majority Report:  Do pass.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Bauer, Bluechel, Cantu, Deccio, Fleming, Gaspard, Hayner, Johnson, Lee, Moore, Newhouse, Saling, Smith, Talmadge, Vognild, Warnke, Williams, Wojahn, Zimmerman.

Senate Staff:Gary Benson (786-7715)

                  February 29, 1988

AS REPORTED BY COMMITTEE ON WAYS & MEANS, FEBRUARY 26, 1988

BACKGROUND:

The Washington inheritance tax was eliminated by initiative 402 in 1981.  Federal tax law makes provision for a credit for state inheritance taxes.  Many states, including Washington have an inheritance tax only in the amount of the federal credit.  This tax is called a pickup tax, and it does not increase the total tax liability of an estate since if the state does not levy the pickup tax, that same amount would be levied by the federal government.

In 1986 Congress, as part of tax reform, amended the inheritance tax statutes with respect to generation- skipping transfers and recaptures of tax.  Generation-skipping transfers refer to transfers of estates at least two generations below the transferor.  The recapture tax refers to farms or closely held family businesses which are valued at their special use rather than at market value.  The new law requires that such property be used by the heirs for the special use for a period of time.  The state is not currently taking full advantage of the "pickup tax" because these provisions have not been referenced in state law.

Federal law allows for deferral of federal estate taxes.  State law is ambiguous as to whether state tax may be deferred.

Interest at 12 percent is payable on refunds for overpaid inheritance taxes if the claim for refund is filed not more than one year from the time the federal tax was paid.

The initiative took away some of the authority of the Department of Revenue to take independent action (other than through the Attorney General's office) to collect tax that was due.  Apparently it was thought that the state tax rate was low enough that there would not be tax avoidance.  This has not always been the case.

There are statutory provisions for estates valued under $10,000 which allow disposition of estates through an affidavit procedure.  In the case of escheat property there is no authority for the state to use this procedure on estates of this value.

SUMMARY:

References to federal inheritance tax statutes are changed to reflect provisions of the 1986 Tax Reform Act with respect to generation-skipping transfers and recaptures.

The language of various sections is reworded and reorganized without substantive change for clarification purposes.

If an estate is deferring payment of federal tax as authorized by federal law, then state taxes may also be deferred.

Interest is payable on refunds if the application for refund is filed within four months after adjustment or final determination of federal tax.

The Department of Revenue is authorized to file findings regarding estate tax liability in Superior Court.  The Superior Court Clerk is authorized to give notice of the filing, and the Superior Court is authorized to make an order confirming the findings and fixing the tax.

The Department is authorized to use the affidavit procedure in the case of escheat property valued at less than $10,000.

Appropriation:    none

Revenue:    yes

Fiscal Note:      available

Effective Date:The bill contains an emergency clause and takes effect immediately.

Senate Committee - Testified: Pat Parks, Washington State Bar Association (for)