The purpose of this information release is to provide a brief summary of significant estate tax changes resulting from the recent passage of HB 66.
Updated References to the Internal Revenue Code.
The estate tax, chapter 5731. of the Ohio Revised Code (R.C.), has been amended to provide a general definition of the Internal Revenue Code (IRC) for purposes of Ohio’s estate tax law (R.C. 5731.01(F)). This is similar to how the IRC is referenced for both Ohio’s personal income tax (R.C. 5747.01), and corporation franchise tax (R.C. 5733.04).
As a result of the amendment to R.C. 5731.18, the Ohio additional tax statute references a more current version of the IRC. Because The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) totally repealed the federal credit allowed for state death taxes (IRC 2011) for dates of death occurring on or after January 1, 2005, the Ohio Additional Tax is constructively repealed. This change is prospective and applies to decedents dates of death occurring on or after July 1, 2005.
In addition to the preceding, uncodified section 557.03 of HB 66 grants a temporary credit to those estates impacted by the EGTRRA legislation. The amount of additional estate tax that is due after application of the section 557.03 credit is the same amount that would be due had the amendments to IRC 2011 been incorporated in 2002. This has the effect of mitigating the excess additional estate tax claim for the difference between any pre-EGTRRA and post-EGTRRA additional tax assessments.
R.C. 5731.181, the generation-skipping transfer tax statute, is amended to reflect references to the IRC in its most current version. EGTRRA amended section 2604 of the IRC to terminate the credit allowed for generation-skipping transfers occurring after December 31, 2004. Updating Ohio statutory references to federal law incorporates changes in the federal law occurring since the most recent amendment of the Ohio statute. As a result, the Ohio Generation-Skipping Transfer Tax is constructively repealed. This change is prospective and applies to generation-skipping transfers occurring on or after July 1, 2005.
Repeal of Estate Tax Deduction for Qualified Family-Owned Business Interests.
R.C. 5731.20 previously provided for a maximum deduction not to exceed $675,000 for qualifying family-owned business interests. Uncodified section 612.24 of HB 66 repeals outright the estate tax deduction for qualified family-owned business interests. The repeal is effective for decedents dates of death occurring on or after July 1, 2005.
Estate Tax Interest Rate Change.
R.C. 5703.47 requires the Tax Commissioner to determine, on October 15 th of each year, the federal short-term interest rate. The federal short-term rate rounded to the nearest whole percent, plus three per cent, is the rate of interest that accrues during the following calendar year for all tax and miscellaneous statutes that require interest to be computed at the rate per annum required by R.C. 5703.47.
Through June 30, 2005, R.C. 5731.23 required interest to be computed at the rate per annum as mandated by R.C. 5703.47, which includes the three per cent addition. Consequently, the interest rate from January 1, 2005 to June 30, 2005 is based on a calendar year rate of five (5) percent. Effective July 1, 2005, amendments to R.C. 5703.47 and 5731.23 resulting from HB 66 redefine how interest owing on both underpayments of estate tax and overpayments of estate tax will be calculated. Interest on the estate tax (and personal property tax) will now accrue at the federal short-term interest rate without the three per cent addition. Accordingly, any portion of the estate tax that is subject to interest from July 1, 2005 to December 31, 2005 will accrue interest based on a calendar year rate of two (2) percent. The rate for calendar year 2006 will be three (3) percent.