Order Code RS20853
Updated July 6, 2001
CRS Report for Congress
Received through the CRS Web
State Revenue from Estate, Inheritance, and
Gift Taxes
Steven Maguire
Economic Analyst
Government and Finance Division
Summary
P.L. 107-16, the Economic Growth and Tax Relief Reconciliation Act of 2001,
repeals the federal estate tax for decedents dying after December 31, 2009. In addition,
the Act repeals the credit for state death taxes for decedents dying after December 31,
2004 and replaces the credit with a deduction. Most state budgets will be affected
because all states have estate and inheritances taxes which can be credited dollar-for-
dollar against federal estate tax liability. In most states, the repeal of the tax and the
significant increase in the federal exclusion equivalent, will also repeal or diminish state
estate, inheritance, and gift taxes. Some state budgets depend on the estate tax more
than others. As a percentage of tax revenue, the dependence on state death taxes ranges
from 0.19% in Alaska to 4.61% in New Hampshire. As of July, 2001, 38 states have
estate taxes that are dependent on the federal estate tax and 12 have independent estate
taxes. In 2005, when the credit is repealed entirely, 40 states will be dependent on the
federal estate tax. When the federal estate tax is repealed, most states will also have their
estate tax repealed. This report will be updated as events warrant.
The federal estate tax will be repealed gradually by the Economic Growth and Tax
Relief Reconciliation Act of 2001. Repeal of the federal estate tax and increase of the
exclusion amount (or its credit equivalent) will also repeal or diminish most state estate,
inheritance, and gift taxes. In 1999, state estate and gift tax revenue was 1.5% of total
state tax revenue, but there was considerable variation among the states. This report will
briefly describe the federal credit for state death taxes and provide data on the relative
importance of estate, inheritance, and gift taxes to each state.
Background
The federal credit for state estate, gift, and inheritance taxes first appeared in the
Revenue Act of 1924, some eight years after the introduction of the federal estate tax.
The Act stipulated that estates could claim a credit for state estate taxes up to 25% of the
federal estate tax liability. After numerous modifications since its introduction, the federal
credit is now a schedule of 21 gradually increasing rates beginning at 0% and eventually
Congressional Research Service ˜ The Library of Congress

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reaching 16%.1 The rates are levied on the value of the net federal estate2 less a $60,000
exemption (the remainder is called the adjusted taxable estate). The top credit rate of 16%
applies to adjusted taxable estate values over $10,040,000. The credit reduces federal
estate tax liability dollar for dollar and only estates filing a federal estate tax return can
claim the credit.
Economic Growth and Tax Relief Reconciliation Act of 2001. The Act
phases out the federal credit for state death taxes for decedents dying after December 31,
2004 and replaces it with a deduction beginning in 2005. The phase-out begins in 2002
when the credit is reduced to 75% of the current credit; to 50% in 2003; and to 25% in
2004. In addition, the applicable exclusion amount for federal estate taxes increases to $1
million for 2002 and 2003 and to $1.5 million in 2004. The increase in the applicable
exclusion amount is important to states because the exclusion is also the filing threshold
for the federal estate tax. The higher threshold means fewer estates will file a federal
return which then means fewer will file state estate tax returns.
For more information on the federal estate tax and the credit equivalent, see CRS
Report RL30600, Estate and Gift Taxes: Economic Issues. For more background on the
interdependence of federal and state taxes, see CRS Report RL30817, Federalism
Through Tax Interdependence: An Overview.
State Estate and Gift Tax Revenue
All states collect an estate tax and thus receive some benefit from the federal credit
for those taxes. States generally impose their tax in one of two ways. The majority of
states (38 in 2001) and the District of Columbia pick up the federal credit for state death
taxes described above. Others (12 in 2001) collect a state inheritance tax and then impose
an additional tax to absorb any remaining federal credit. Thus, elimination of the federal
estate tax will have an impact on all states, though to varying degrees.
The following explanation of the estate tax in Virginia, which is an exclusively “pick
up” state, appears on the Virginia Department of Taxation official website 3:
The [Virginia estate] tax is a “pick up” tax, based on the federal credit for state death
taxes reported on the federal estate tax return (Form 706). Therefore, only those estates
that are required to file a federal estate tax return will be subject to the Virginia estate
tax requirements.... Virginia law does not provide for a specific tax rate. The tax is
based on “the credit for state death taxes” from line 15 of the federal estate tax return,
Form 706.
1 The “Federal Credit of State Death Taxes” is 26 U.S.C. 2011.
2 The “net federal estate” is the estate less funeral expenses, etc.
3 The citation is from the website: [http://www.tax.state.va.us/estate.htm].

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The remaining 12 states impose an estate tax independently of the federal estate tax.4
These states will lose only the portion of their estate tax that relies on the existence of the
federal credit. In these states, the law is usually constructed to pick-up any federal estate
tax credit remaining after a state death tax is imposed. For example, if the maximum
federal credit for state death taxes for the estate is greater than the estate tax due to the
state, the state law directs the executor of the estate to remit the difference to the state.
The state has effectively “sponged-up” the remaining federal credit. The potential revenue
loss from federal repeal will likely be smaller in these independent states relative to states
with only the dependent tax.
Pennsylvania maintains an inheritance tax which is applied with graduated rates and
depends on the relationship of the heir to the decedent (lower rates for closer relatives).
After paying the inheritance tax, a separate estate tax is then imposed to “sponge-up” the
remainder. Pennsylvania describes its estate tax on its official website as5:
a “pick-up” tax imposed to absorb the maximum amount of credit allowed by federal
estate tax law toward state death taxes. For residents, the estate tax represents the
difference between the Pennsylvania inheritance tax plus death taxes paid to other states
and the maximum federal credit for state taxes allowed by federal estate tax law.
If the estate tax were repealed, taxpayers in the 12 states like Pennsylvania with
stand-alone estate taxes would lose the federal credit along with the federal liability. The
existence of a state inheritance tax absent a federal credit could lead state policy makers
to either repeal or modify their existing estate taxes. The political pressure to repeal state
inheritance taxes upon repeal of the federal estate tax might be greatest in states with an
independent inheritance tax like Pennsylvania’s.
Table 1 provides data on the relative importance of estate and gift taxes to each state
for FY1999. The first section lists the states that only pick up the federal credit, like
Virginia, and the second section lists those that have an independent inheritance tax, like
Pennsylvania. The table also reports the tax revenue generated by state estate and
inheritance taxes and ranks the states based upon their reliance on state estate and gift
taxes as a percentage of total tax revenue. The number of exclusively pick-up tax states
will increase from 38 to 40 by 2005, since some states are in the process of eliminating
their independent taxes.
In dependent pick-up tax states, the revenue loss generated by repeal of the federal
estate tax could be approximated by revenue collected. However, the estate and gift tax
revenue collected in states with an independent estate tax would not accurately predict the
revenue loss attributable to repeal or reform of the federal estate tax. Also, estate tax
collections vary considerably from year-to-year based on the wealth of the year’s
decedents. For more on the federal estate tax and the effect of its repeal would have on
specific states, see the following: Federation of Tax Administrators Bulletin, Repeal of
4 In some cases, the state death tax liability may exceed the available federal credit. For more, see:
Federation of Tax Administrators Bulletin, Repeal of Federal Estate Tax Would Have Effect on
States, Feb. 22, 2001, Washington, D.C.
5 The website: [http://www.revenue.state.pa.us/revenue/cwp/view.asp?a=3&Q=69002&subID=I].

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Federal Estate Tax Would Have Effect on States, February 22, 2001, Washington, D.C.
The report is available on the following website: [www.taxadmin.org].
There is considerable variation among the states in proportion of the total state tax
revenue accounted for by the estate tax. In Alaska, the pick-up estate tax amounts to only
0.19% of tax revenues. In New Hampshire, on the other hand, the State’s independent
inheritance tax contributes 4.61% of the state’s total tax revenues.
Table 1. State Death and Gift Tax Revenue in Fiscal Year 1999
State Revenue from
Death and Gift
Death and Gift Tax
Taxes as Percent of
State
($000s)
Total Tax Revenue
Rank
United States
$7,493,136
1.50%
States with Pick-Up Tax Only in 2001 (38)
Alabama
62,784
1.04%
31
Alaska
1,726
0.19%
50
Arizona
89,088
1.18%
26
Arkansas
32,572
0.71%
41
California
877,901
1.21%
23
Colorado
65,391
1.09%
30
Delaware
27,058
1.33%
19
Florida
649,521
2.73%
5
Georgia
111,192
0.89%
37
Hawaii
28,738
0.91%
35
Idaho
11,128
0.51%
47
Illinois
346,978
1.64%
11
Kansas
70,239
1.53%
13
Maine
29,768
1.17%
28
Massachusetts
173,867
1.18%
27
Michigan
174,891
0.75%
40
Minnesota
58,132
0.47%
48
Mississippi1
30,767
0.67%
42
Missouri
118,670
1.39%
16
Montana2
18,302
1.34%
17
Nebraska3
17,449
0.66%
44
Nevada
41,472
1.21%
24
New Mexico
21,912
0.63%
45
New York4
1,071,464
2.77%
4
North Carolina
182,851
1.27%
21
North Dakota
7,416
0.67%
43
Oregon
47,979
0.90%
36
Rhode Island
46,854
2.47%
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State Revenue from
Death and Gift
Death and Gift Tax
Taxes as Percent of
State
($000s)
Total Tax Revenue
Rank
South Carolina
57,190
0.98%
34
South Dakota5
26,427
3.04%
3
Texas
256,277
1.00%
33
Utah
8,238
0.23%
49
Vermont
23,358
2.31%
9
Virginia
154,078
1.33%
18
Washington
69,701
0.56%
46
West Virginia
27,325
0.87%
38
Wisconsin
116,898
1.01%
32
Wyoming
9,731
1.20%
25
States with Independent Estate, Inheritance, and Gift Taxes in 2001 (12)
Connecticut6
250,171
2.60%
6
Indiana
148,712
1.53%
14
Iowa
72,836
1.50%
15
Kentucky
81,483
1.11%
29
Louisiana7
95,973
1.59%
12
Maryland
126,168
1.33%
20
New Hampshire
49,368
4.61%
1
New Jersey
423,015
2.50%
7
Ohio
141,456
0.78%
39
Oklahoma
88,796
1.64%
10
Pennsylvania
760,698
3.52%
2
Tennessee
89,127
1.24%
22
The following table notes are from: Federation of Tax Administrators Bulletin, Repeal of Federal Estate
Tax Would Have Effect on States, Feb. 22, 2001, Washington, D.C. 1Mississippi phased out its separate
estate tax. After Jan. 1, 2000, only the pick-up tax applies. 2Montana voters approved an initiative
repealing the state’s inheritance tax effective Dec. 31, 2000. 3Nebraska employs a pick-up tax at the state
level. Counties impose and collect a separate inheritance tax. 4New York repealed its separate estate tax
effective Feb. 1, 2000; the state now has a pick-up tax based on the state death tax credit schedule in effect
on that date. 5South Dakota voters approved repeal of the state’s inheritance tax effective June 30, 2001;
at that point the state will move to a pick-up only tax. 6Connecticut is phasing out its inheritance tax;
under current law, the state will move to a pick-up only tax in 2005. 7Louisiana is phasing out its
inheritance tax; under current law, the state will move to a pick-up tax in 2004.; only the pick-up tax now
applies.
Sources: U.S. Bureau of Census, State Government Tax Collections: 1999; and author’s calculations.

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