Newspaper article THE JOURNAL RECORD

Task Force Proposes Elimination of Estate Tax

Newspaper article THE JOURNAL RECORD

Task Force Proposes Elimination of Estate Tax

Article excerpt

The Citizens' Task Force on Taxation recommended Friday that lawmakers eliminate Oklahoma's estate tax and, instead, enact a pickup tax equal to the federal credit for state death taxes.

The panel's Estate Tax Subcommittee, chaired by Barbara Ley of Oklahoma City, also recommended enactment of a generation-skipping transfer tax, or GST, equivalent to the federal credit allowed for generation-skipping tax paid to the state.

Ley said Oklahoma currently does not have a generation-skipping transfer tax, which enables a parent to establish a trust to pay income to a child for life and then to distribute the assets to that children's descendants. The child's death results in a taxable termination and causes imposition of GST tax. When there is a taxable distribution or taxable termination occurring at death, the federal provision authorizes a credit for GST tax actually paid to a state, not to exceed 5 percent of the federal GST tax. To the extent that a state GST tax on taxable distribution and taxable terminations occurring at death does not exceed 5 percent of the federal tax, a state tax on such transfers does not result in the imposition of additional transfer tax. The subcommittee said there is no justification for the Legislature's failure to pass a pickup GST tax. On the estate tax issue, the subcommittee said that, if Oklahoma were to enact a pickup tax, it would not increase an estate's overall death tax burden, since the estate otherwise would be obligated to pay the same amount in additional federal estate tax. Ley said 35 states, including all of the states that border Oklahoma, have enacted a pickup tax. And Oklahoma's current death tax minimum rate ranks seventh highest in the nation. The Legislature considered a pickup tax this year but instead opted to increase the exemption for transfers to the decedent's parents and lineal descendants to $275,000 for decedents dying in 1999, $475,000 in 2000 and $675,000 in 2001. After 2001, increases in the Oklahoma exemption are scheduled to match the federal increases until 2006, when both will be $1 million. After 2006, the Oklahoma estate tax on lineal transfers normally will equal the federal credit for state death taxes. With respect to transfers to collateral heirs and unrelated beneficiaries, the results are startling, the subcommittee said. There is no estate tax exemption for those transfers, which are taxed at higher rates. If a person dies in 2006 with a $1 million taxable estate, there would be no federal estate tax. Nor would there be an Oklahoma estate tax, as long as the estate passed to lineal heirs. If the estate passed to a decedent's brothers and sisters, however, Oklahoma would assess $115,200 of estate tax. Enacting a pickup tax would make the Oklahoma death tax a true estate tax that would be based on the value of the decedent's estate, rather than on the identity of the beneficiaries, the subcommittee said. …

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