States and Estate Taxes

July 14, 2005

A phase out of the federal estate tax was a quiet provision in the 2001 tax cuts which is currently creating a good deal of commotion on the state level. The federal estate tax is due to expire in 2010 and this has states frantic as they are certain to lose a revenue source should the repeal become permanent. The Wall Street Journal reports:

While Congress considers slashing or even eliminating the federal estate tax, some revenue-hungry states are taking the opposite approach. Connecticut just approved a law that includes higher taxes on many large estates. Washington state enacted a new estate tax to replace one a court struck down this year. And North Carolina took action to prevent the scheduled demise of its estate tax at midyear. These changes come on top of moves by numerous other states in recent years to protect their own lucrative estate and related taxes, which otherwise would have dried up because of a federal tax law change enacted in 2001.The law included the phase-out of a federal credit for state “death” taxes. Many states had tied their taxes to the amount of this credit, which disappeared entirely this year. As a result of the federal move, states faced losing billions of dollars in revenue. Confronted by this threat, about one-third of the states have taken action to shore up their own estate-tax systems, including separating them from the federal estate-tax system.

The following is a list of states whose estate tax still absorbs the federal credit and those that have decoupled.

Alabama absorbs credit
Alaska absorbs credit
Arizona absorbs credit
Arkansas absorbs credit
California absorbs credit
Colorado absorbs credit
Connecticut decoupled
Delaware absorbs credit
Florida absorbs credit
Georgia absorbs credit
Hawaii absorbs credit
Idaho absorbs credit
Illinois decoupled
Indiana absorbs credit
Iowa absorbs credit
Kansas absorbs credit
Kentucky absorbs credit
Louisiana absorbs credit
Maine decoupled
Maryland decoupled
Massachusetts decoupled
Michigan absorbs credit
Minnesota decoupled
Mississippi absorbs credit
Missouri absorbs credit
Montana absorbs credit
Nebraska decoupled
Nevada absorbs credit
New Hampshire absorbs credit
New Jersey decoupled
New Mexico absorbs credit
New York decoupled
North Carolina decoupled
North Dakota absorbs credit
Ohio decoupled
Oklahoma decoupled
Oregon decoupled
Pennsylvania decoupled
Rhode Island decoupled
South Carolina absorbs credit
South Dakota absorbs credit
Tennessee absorbs credit
Texas absorbs credit
Utah absorbs credit
Vermont decoupled
Virginia decoupled
Washington decoupled
West Virginia absorbs credit
Wisconsin decoupled
Wyoming absorbs credit
District of Columbia decoupled

31 States absorb the credit.

19 states and Washington, D.C decoupled.

Was this page helpful to you?


Thank You!

The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work?

Contribute to the Tax Foundation

Related Articles