With demands to balance budgets, minimize debt, and support public programs, states are exploring strategies to create new revenue by expanding the footprint of taxation, John O. McManus, the founding principal of McManus & Associates, a trusts and estates law firm based in New York City and New Providence, NJ, writes in this week's issue of the Bloomberg BNA Weekly State Tax Report. This trend is evident in the estate and gift arena and highlights the importance of staying informed about wealth transfer taxes, McManus cautions.
The state enactment of gift taxes illustrates this trend.
In 2005, Connecticut was the first state to impose a state gift tax on lifetime gifts made to others, McManus writes. In the years following the adoption of this statute, the gift tax exemption (or the amount that a Connecticut resident could gift during his or her lifetime without paying gift tax) gradually increased and rose as high as $3.5 million, McManus said. However, beginning in 2011, Connecticut's governor signed into law a new budget that dramatically curtailed the ability to make tax-free gifts by reducing the state's lifetime gift exemption to $2 million and taxing up to 12 percent on aggregate lifetime gifts exceeding that amount, according to McManus.
Minnesota recently enacted a gift tax. Effective as of July 1, 2013, in addition to adopting rules subjecting certain nonresidents to estate taxation, Minnesota passed a law that established its own state gift tax with a gifting exemption that is limited to $1 million, McManus explains.
It is a significant concern that other cash-strapped states may follow the lead of Connecticut and Minnesota, McManus says. Those states that do charge an estate or inheritance tax experience diminishing returns when the property and assets that their residents gift during their lifetimes are not a part of the estate upon death. Many politicians view the imposition of a gift tax as a safer revenue-generating innovation, because most of their constituents would be unaffected by such a levy, McManus said.
The complete article by McManus, which provides an in-depth look at several of the estate and gift tax regimes cropping up across states, can be read here.
Continue the Discussion on BBNA's State Tax Group on LinkedIn : Will other states follow Connecticut and Minnesota by imposing a gift tax?
In other developments…
Tax Shift Could Hit Most Georgia Seniors with a Tax Increase , according to the Georgia Budget and Policy Institute
State Tax Cut Roundup, 2013 Legislative Session, November 2013 , by the American Legislative Exchange Council
The Texas Supreme Court may be planning to again apply its "plain meaning" analysis in a pending tax case , by the Texas State & Local Tax Law Blog
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