ANNAPOLIS – The General Assembly will try again to eliminate the state’s 10 percent inheritance tax when it reconvenes in January to consider a bill to give aunts, nephews, cousins and friends the same exemption that closer relatives now have.
Legislators fell short of ending the state inheritance tax last session, making a last-minute compromise to exempt only direct relatives – parents, children, spouses, grandchildren and siblings.
Before the tax was repealed last session, parents, children, spouses and grandchildren had to pay .9 percent and siblings 8 percent.
This session, there is a push to repeal the tax for everyone else.
Delegate Obie Patterson, D-Prince George’s, prefiled a bill to exempt so-called “collateral descendents” from paying the tax.
“If I wanted to leave (a home) to my nephew, I’ve paid taxes on it all my life,” said Patterson. “Why would he have to be taxed on it again?”
There have been moves to abolish the tax for years, including a bill proposed by Patterson two years ago.
Last session, the repeal, co-sponsored by Patterson and House Speaker Casper R. Taylor Jr, D-Allegany, passed the House of Delegates, but faced opposition in the Senate.
Senate President Thomas V. Mike Miller Jr, D-Prince George’s, and other members of the Senate said eliminating the tax would be too costly because it removed the State Register of Wills’ major revenue source.
Because of a projected shortfall in revenue next year and no way to recoup revenue lost from eliminating the tax, Miller said he still opposes such a bill.
Taylor did not return calls for comment.
The “death tax,” as Republican members of Congress call it, has been a controversial issue in the federal government. President Clinton vetoed a Republican repeal of the tax, arguing that the plan benefited the rich because it would most impact wealthy estates. Republicans in the House fell just 14 votes shy of overriding the veto in September.
In Maryland, it’s really two taxes: a “pick-up” estate tax calculated on a federal tax return and a separate inheritance tax credited toward the estate tax amount.
As of 1999, 13 states continued to impose an inheritance tax and three states imposed an estate tax in addition to the pick-up estate tax, according to Legislative Services.
Sen. Barbara A. Hoffman, D-Baltimore, chairwoman of the Maryland Senate Budget and Taxation Committee, said she shares the concern that the full repeal would be too costly. The change might provide tax relief to out-of-state beneficiaries rather than Maryland residents, Hoffman said.
“Why should Maryland give up that taxation potential?” she said, adding that she has an open mind about the issue. But for now, Hoffman thinks the exceptions passed last session were enough.
“You can make a better argument for direct descendants than collaterals,” said Hoffman. “So I’d say the most important part is done.”
Last year, Legislative Services estimated the total repeal would cost the state $49 million in fiscal year 2003, compared to the compromise cost of $25 million in FY 2003.
Patterson and Baltimore Republican Delegate James F. Ports Jr, said they had a deal to complete the repeal this session.
“Fine, if this is the best we can do, we’re going to pass this bill,” Ports remembered telling leadership regarding the compromise. “However, we are going to hold the Senate to its promise to extend to collateral beneficiaries next year.”
Repealing the tax will boost the economy, Ports said.
The tax especially affects minorities and people who inherit property below the federal minimum requirement of $675,000, Patterson said. Those inheritors would not have to pay a federal tax, but would be required to pay the state inheritance tax.
The legislation would remove an unfair tax, Patterson said.
“It eliminates the tax burden for those who you want to leave your property to,” he said. “I think a large portion of those affected are middle-class Americans who have worked hard, and small businesses as well. And I don’t think they should have to pay additional taxes to own that estate.”