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House Finance votes 8-to-5 on party line Monday to repair estate tax after Supreme Court ruling; GOP objects to retroactive language

Post by Brad Shannon / The Olympian on April 8, 2013 at 11:51 am | No Comments »
April 8, 2013 9:32 pm
Rep. Reuven Carlyle
Rep. Reuven Carlyle
Rep. Terry Nealey
Rep. Terry Nealey

Republican Rep. Terry Nealey of Dayton offered an amendment to cut off the state’s claim to taxes back only as far as 2005. This cutoff date would have avoided the threat of further litigation, according to Nealey. But it would protect the state against only $30 million in claims – a fraction of the estimated $160 million cost of the court’s ruling.

And the debate on this tax is occurring in a year that Democrats are looking for extra money anywhere they can to put into K-12 schools and higher education.

In the end, majority Democrats used their larger numbers on the panel to outvote the GOP and pass House Bill 1920. The money raised by the tax goes into an account for education.

House Finance chairman Reuven Carlyle, D-Seattle, said there is a long history of retroactive fixes to laws and they have survived legally. He noted two others in recent years including one involving Dot Foods case and grocers that did not trigger a challenge.

Voting in favor of HB 1920 were Democratic Reps. Carlyle, Steve Tharinger of Dungeness, Joe Fitzgibbon of Seattle, Drew Hansen of Bainbridge Island, Kristine Lytton of Anacortes, Gerry Pollet of Seattle, Chris Reykdal of Tumwater, and Larry Springer of Kirkland. Voting against were Republican Reps. Nealey, Ed Orcutt of Kalama, Cary Condotta of East Wenatchee, Brandon Vick of Felida and J.T. Wilcox of Yelm.

The history on the law is a bit convoluted and you can read a good summary in a bill report here.

Rep. Wilcox said in an interview that the Washington State Bar Association had testified that a retroactive law would open the state to further lawsuits. He said that was not a wise course to take such a risk in the new bill during a year when lawmakers are already dealing with close to $2 billion in budget holes caused by court rulings – on the school funding, on the estate tax, and in a lawsuit dealing with a phone tax exemption and cell service.

Carlyle disagreed. He said the state Department of Revenue, legislative lawyers and the Attorney General’s Office all agreed the state could go back to estates structured before 2005. Carlyle argued that there are risks to every state action and in this case the risk is small and worth taking.

Carlyle also said there is no evidence the Legislature or the Supreme Court ever intended to create a legal situation where married couples are treated differently than individuals under the estate law. He suggested in an interview that the Republicans were basing their objections to the legal fix – in reality – on their longtime opposition to the estate tax.

A majority in the Legislature approved the estate tax as a levy separate from the federal estate tax in 2005 – in response to another Supreme Court ruling on the old estate tax that was a “pick up” on the federal estate tax, which had been changed by Congress and thereby impacted Washington’s tax. One year later, nearly 62 percent of Washington voters overwhelmingly rejected an initiative that would have repealed the estate tax – and the initiative passed in only three of 49 legislative districts (including Nealey’s).

Wilcox said the GOP committee members probably would not have supported HB 1920 even with Nealey’s amendment. But he thinks some members might back the tax change if the retroactivity piece is left out. “I would expect we’ll try putting the amendment (in),” Wilcox said.

Rep. Condotta was taking a harder view and said if he’d had more time he would have offered an amendment to phase out the tax entirely – “because I’ve never been a fan of the death tax.’’

It is not yet clear how soon HB 1920 goes to the House floor for a vote. But House Democrats are rolling out a two-year spending plan on Wednesday that includes an array of tax-raising features including close of tax exemptions that are deemed to be less valuable than school funding.

Of various proposals outlined by Gov. Jay Inslee, House Republicans are supporting only one – a legal fix to a court ruling in a telecommunications case, which requires repeal of a residential telephone tax exemption.

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