SENATE BILL REPORT

SB 6340

BYSenators McDonald, Talmadge and Newhouse

Revising transfer tax provisions.

Senate Committee on Ways & Means

Senate Hearing Date(s):January 25, 1988

Majority Report:  Do pass.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Bauer, Bluechel, Cantu, Deccio, Gaspard, Hayner, Lee, Saling, Talmadge, Williams, Zimmerman.

Senate Staff:Gary Benson (786-7715)

                  February 16, 1988

AS PASSED SENATE, FEBRUARY 16, 1988

BACKGROUND:

The Washington inheritance and gift taxes were repealed by the voters through Initiative 402 in 1981.  The estate tax was enacted at the same time.  Federal law allows a credit against the federal inheritance tax for state taxes paid.  The Washington estate tax absorbs the maximum allowable credit.  Commonly called a "pick up" tax, the total tax liability of an estate is not changed.  Payment of the tax to the state reduces the amount of tax paid to the federal government by a like amount.

The 1986 Federal Tax Reform Act amended the federal inheritance tax with respect to generation-skipping transfers and recaptures of tax.  Generation-skipping transfers refer to transfers of estates at least two generations after 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.  For the state to take advantage of the credits allowed for these two taxes, they need to be mentioned in state law.

The Department of Revenue and estate tax lawyers have found numerous ambiguities and internal inconsistencies in Initiative 402.

SUMMARY:

References are made to a generation-skipping transfer "pick up" tax and a "pick up" tax on the special use recapture tax.  This allows the state to collect taxes up to the maximum allowable federal credit.

Changes are made in various sections of the estate tax for clarification purposes.

Appropriation:    none

Revenue:    yes

Fiscal Note:      available

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

Senate Committee - Testified: Pat Parks, Mike Carrico, Washington State Bar Association; Dee Cooper, Department of Revenue