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House votes again to restore Wash. estate tax rules

Post by Brad Shannon / The Olympian on May 30, 2013 at 1:30 pm | No Comments »
May 30, 2013 9:20 pm

OrmsbyThe state House voted today on a party-line vote to approve an estate tax bill that restores the Washington’s estate-tax law to cover the estates of married couples as well as for single persons who die and bequeath $2 million or more. One Democrat, Rep. Monica Stonier of Vancouver, crossed over to vote against House Bill 2064 and three other Democrats were excused or not voting.

Three Republicans also were absent but no GOP member voted in favor. The final vote was 51-40 and the roll call is here.

Stonier, a first-year lawmaker, had voted against other tax measures this year and has said she is voting her district’s wishes on revenues. The votes come on the 18th day of a 30-day special session with little or no sign the Democrat-controlled House and Republican-led Senate can come to terms on an operating budget for the two-year period that begins July 1.

HB 2064, which just got a hearing in committee Wednesday, now goes to the Senate where two alternative measures drafted by Republicans – Senate Bill 5939 and SB 5940 – are already scheduled for a hearing at 10 a.m. Friday in the Ways and Means Committee.

The House tax bill is a “technical fix,” as House Finance Committee chairman Reuven Carlyle has described it, because it reinstates a law and revenue stream the state had expected to use for K-12 school funding. He noted voters in all Washington counties voted to uphold the tax in 2006 and said, “This legislation effectively returns the will of the people to state statute.’’

The legislation is sponsored by Rep. Timm Ormsby, D-Spokane, and comes in response to a state Supreme Court ruling last year that in effect struck down the tax as it applies to married couples who had set up certain property trusts, dubbed QTIP or qualified terminable interest property trusts. But it leaves the estate tax in place for single adults who leave behind estates valued over $2 million.

Under the bill, the tax must be paid upon the death of the second spouse.

The legislation has an emergency clause and would take effect immediately upon its passage and signing by the governor. It also is retroactive for QTIP estates created prior to the state’s passage of its own independent estate tax in 2005 where one spouse had died before that date.

Rep. Terry Nealey
Rep. Terry Nealey

House Republicans objected to the retroactive taxing of couples who had set up estates prior to 2005 when a different estate tax law was in effect. In a floor speech, Republican Rep. Terry Nealey of Dayton said there was a risk the new bill also could be tossed out by a court, forcing the state to make refunds as it now must do in the wake of last year’s ruling – unless or until the Legislature closes the court-created tax loophole.

Nealey also pointed out that there will be some couples who filed suit over the case who will get tax relief as a result of the Supreme Court ruling and some that won’t. “Now we’re coming back and saying no we’re not going to treat you the same as the families who sued in the first place,’’ Nealey said.

But Democratic Rep. Sharon Tomiko Santos of Seattle said the measure is needed to meet another Supreme court requirement that lawmakers invest more money into K-12 education. “This money is going to support the world class education system that we all are in the process of creating here …” Santos said. “Every dollar counts in this environment. Every dollars counts … because every child in the state of Washington counts.’’

An analysis by partisan House Democratic staff says that QTIP trusts let a couple designate assets that can be passed on to a surviving spouse and then to heirs upon the death of the second spouse – with no right for the second spouse to change terms of the bequeathing. The analysis says that under federal law, such property cannot be taxed upon the first spouse’s death but can be after the second spouse dies.

Carlyle has estimated that quick passage of the House bill could limit state refunds under the court decision to $6 million, but refunds could grow to $138 million without legislation action – and the state could lose $160 million in estate tax revenue during the next biennium without an estate tax fix. The Department of Revenue now plans to start giving out refunds to parties that claim them.

it is not clear yet how much revenue the Senate alternatives would preserve or cut. SB 5939 is prime sponsored by Ways and Means Chairman Andy Hill and would reduce the rate of tax applying to estates while raising the threshold for taxable estates to over $5 million. But it would make the tax collections retroactive as the House bill proposes. The other measure, SB 5940, lowers tax rates and also raises the threshold for taxable estates.

The estate tax is one of several tax measures in dispute between the House – where Democrats backed by Gov. Jay Inslee want to raise more than $1 billion in new revenues and put much of it into K-12 schools and higher education – and the Senate where a Republican-led coalition has largely held firm against any tax increase including the estate tax.

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