Tennessee’s tax on inheritances – which Republicans want to phase out – was paid by the heirs to 845 estates last year, the Department of Revenue says.
A GOP plan at the Capitol to eliminate the inheritance tax in four years would save those taxpayers $97 million annually. Beneficiaries to estates under $1 million are already exempt from the tax, and Gov. Bill Haslam has proposed lifting the exemption next year, the first step toward repeal.
If his plan is successful, Tennessee would join a majority of the states in not taxing inheritances. Several states including Indiana, Nebraska and Oregon are also considering raising exemptions or doing away with the tax.
HB3760 begins by increasing the exemption to $1.25 million for property inherited from someone who dies in 2013. New language would increase that exemption to $2 million in 2014 and $5 million in 2015 and eliminate the tax in 2016.
In Tennessee, inheriting an estate worth $1.04 million now costs $2,200 in taxes. Property worth $5 million costs $368,400 to inherit. Under the plan, the $1.04 million property could be passed down tax-free next year, and the $5 million property would cost $344,650 in taxes.
Leaders of the majority party say those costs are crimping the economy.
“We wanted people to be able to know what was going to happen in the years coming, so they could actually plan for the future,” said Finance Committee Chairman Charles Sargent, R-Franklin. “No one anticipates that they’re going to die in the next two or three years, so hopefully they’ll stay in Tennessee, and we’ll work from there.”
Farmers say the issue is among their top concerns as they worry about the tax of handing their farm off to the next generation once they die. Small business owners also say it’s a big relief.
“We’re thrilled they could make it work,” said Jim Brown, executive director of Tennessee’s chapter of the National Federation of Independent Business, who said 84 percent of his members responding to a survey favor a full repeal.
“It’s great for farmers. It’s great for multi-generation businesses, and it’s great for Tennesseans who used to be here, to come back to Tennessee,” said Brown.
Democrats say they fundamentally agree with reducing the tax, but they’d rather focus their energy on lowering the tax on food because it’s a cut all of the state’s 6 million Tennesseans would feel.
“The inheritance tax is a problem, but it’s a nice problem to have, and it’s a problem that most people in Tennessee will never have to deal with,” said Rep. Mike Turner, the House Democratic Caucus Chairman.
“I’m just not sure it’s that good of an idea at this time,” he said.