Delaware’s Governor John Carney Jr. recently signed an estate tax repeal bill, two days after signing the 2018 state budget, which includes tax hikes on real estate transfers, tobacco, and alcohol.
Wealth Advisor’s recent article, entitled “Latest State To Repeal Estate Tax: Delaware,” notes that Delaware is thinking that the very wealthy don’t have to move to Florida. The thought is that if they stay in Delaware—rather than changing residency to avoid the Delaware state estate tax—they will contribute to the state’s coffers by paying personal income taxes.
“We came to the realization that it was absolutely necessary to do [estate tax repeal] because we were losing more in income tax than what we would gain in estate tax,” says Rep. Mike Ramone, the bill’s primary sponsor and a small business owner.
A 2015 report by the Delaware Economic and Financial Advisory Council on Revenues described the estate tax as a “small, volatile source of tax revenue.” That group recommended the tax’s repeal, based in part on its negative influence on personal income tax revenues. The estate tax brought in a high of $16.2 million in 2011, a low of $1.3 million in 2014, and $9.3 million last year.
The state estate tax was initiated by Democratic Governor Jack Markell in 2009, as a temporary tax when the budget deficit was $800 million. The state exemption is tied to the federal estate tax exemption. As a result, it starts this year for individuals who die with more than $5.49 million in assets. The Delaware top rate is 16%, compared to the federal tax of 40%.
One proponent of the repeal cited the estate tax as the impetus for at least 10 wealthy clients to change their residency to no-income-tax states, such as Florida, where they had vacation homes.
In 2017, there are 18 states plus the District of Columbia that impose either estate or inheritance taxes or both. The Delaware change will drop that number to 17 states, plus D.C. next year. New Jersey’s estate tax will also be eliminated in 2018, but that state will keep its inheritance tax in effect.
Tennessee (2016), North Carolina and Indiana (2013), along with Kansas, Ohio, and Oklahoma (2010) all scrapped their estate or inheritance taxes in recent years.
Reference: Wealth Advisor (July 10, 2017) “Latest State To Repeal Estate Tax: Delaware”