Weekly Round-Up: Assessing the Fiscal Cliff Compact's Impact on the States [free access to premium content]


The American Taxpayer Relief Act of 2012 (ATRA), which President Obama signed into law Jan. 2 leaves intact most of the business tax breaks such as bonus depreciation that first took effect under President Bush. Tax incentives for alternative energy producers were extended. Large estates remain protected by a $5 million exemption.

For the most part, ATRA keeps things at the status quo for most states' tax codes, said Michael Mazerov, a senior fellow with the Center on Budget and Policy Priorities in Washington, D.C.

What is significant from the standpoint of the states is what ATRA did not do. "It could have brought back the state death tax credit, but that didn't happen," said Mazerov.

From a state fiscal standpoint, one of the most significant aspects of ATRA was its elimination of the federal credit for state estate taxes.

The American Taxpayer Relief Act of 2012 (ATRA) repealed the state estate tax credit for good, leading some states scrambling to reassess their systems. At least two states have already acknowledged the need to scrap their pick-up tax regimes and develop a new estate tax approach. The California Legislative Analyst's Office recently acknowledged that the state would not receive revenue from estate taxes without the enactment of state legislation. Similarly, the Wisconsin Department of Revenue announced on its website that "the credit for state death taxes paid, which would have been the basis for Wisconsin's estate tax, has been eliminated."

As state legislatures contemplate the future of their estate tax systems, potential residents will take the changes to the estate tax into consideration as well. States should "consider the potential negative impact such taxes have had on their citizens' wallets and the state's populations-estate taxes could be driving citizens out while also discouraging people from moving to the state," Alan S. Gassman, a partner at Gassman Law Associates, P.A said. "We have already seen kids say 'no way you are moving back up here Dad, we can give you a private nurse for the cost of inheritance tax if you live up here with us,'" he said. It is, as Gassman stated, "a sad testament to what people will do to avoid taxes," but it is also the new reality of a system without a state estate tax credit.

For a complete look at the impact of ATRA on bonus depreciation, enhanced expensing and credits, check out the complete article by Bloomberg BNA State Tax Assistant Manager Steven D. Roll and State Tax editors Melissa Fernley, and Kathleen Caggiano [full text article available here].

In other developments…

Details of the Fiscal Cliff Tax Deal , by the Tax Foundation.

CRS Study on Tax Rates and Growth Still Flunks the Test , the Tax Foundation finds.

McDonnell proposes eliminating Virginia's gas tax , the Washington Post reports.

Compiled by Priya D. Nair
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