Order Code RS20853
Updated July 14, 2003
CRS Report for Congress
Received through the CRS Web
State Estate and Gift Tax Revenue
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 that die in 2010. In addition, the Act repeals
the credit for state estate taxes for decedents dying after December 31, 2004 and replaces
the credit with a deduction. In most states, the repeal of the tax and the significant
increase in the federal exclusion, 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 total tax revenue collected from FY1992 to FY2002, state estate tax
contributions ranged from 0.16% in Alaska to 3.62% in New Hampshire. As of June
2003, 29 states, including Alaska and New Hampshire, will have estate taxes that will
be repealed in 2005 when the federal “credit for state death taxes” is changed to a
deduction. 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The federal estate tax will be repealed gradually by the Economic Growth and Tax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 (EGTRRA). Repeal of the federal estate tax and
increase of the exclusion amount (or its credit equivalent) as prescribed by EGTRRA will
also repeal or diminish most state estate, inheritance, and gift taxes.1 In FY2002, state
estate and gift tax revenue was 1.38% of total state tax revenue, but there was
considerable variation among the states.2 This report will briefly describe the federal
credit for state estate taxes and provide data on the relative importance of estate,
inheritance, and gift taxes to each state and the District of Columbia.
1 For the remainder of the report, all state taxes that are triggered by death will be referred to as
“state estate taxes.” Thus, “state estate taxes,” will included state inheritance taxes, succession
taxes, and estate taxes.
2 U.S. Census Bureau, Governments Division, State Government Tax Collections, Web site
[http://www.census.gov/govs/statetax/0200usstax.html] visited July 1, 2003.
Congressional Research Service ˜ The Library of Congress

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CRS-2
Background
The federal credit for state estate 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 reaching 16%.3
The rates are levied on the value of the net federal estate4 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.
Changes under the Economic Growth and Tax Relief Reconciliation Act
of 2001 (EGTRRA). Because many state tax codes are linked directly to federal tax
code, changes in federal law also affect the state tax codes. Two parts of EGTRRA affect
the tax revenue generated by state estate taxes. First, EGTRRA phases out the federal
credit for state death taxes for deaths occurring before December 31, 2004 and replaces
the credit with a deduction beginning in 2005. The phase-out began in 2002 when the
credit was reduced by 25%; by 50% in 2003; and by 75% in 2004. In 2005, when estates
deduct state estate taxes, the value of the deduction (in terms of reduced tax liability) is
the top marginal federal estate tax rate (45% or 47%) multiplied by state estate taxes paid.
In contrast, before EGTRRA, the value of the credit was 100%, or it reduced federal tax
liability dollar-for-dollar. Thus, post-EGTRRA, state estate taxes impose a “real” tax
liability or burden.
In addition, the applicable exclusion amount for federal estate taxes increased to $1
million for 2002 and 2003 and to $1.5 million in 2004. The increase in the applicable
exclusion amount is important to many states because it also serves as the filing threshold
for the federal estate tax. Some states require estates to file a state return only when a
federal return is required. If fewer federal estate tax returns are filed then fewer state
estate tax returns would be filed.
States could avoid losing revenue by decoupling from the federal tax code, as some
have since EGTRRA became law. However, the changes enacted by EGTRRA will
necessarily create state estate tax burdens if states decouple from the federal tax code and
collect estate tax revenue. The next section provides data on state estate tax revenue as
reported by the U.S. Census Bureau. The contribution of the estate tax to a state’s
finances may well influence the decision about decoupling.
For more information on the federal estate tax and the credit equivalent, see CRS
Report RL30600, Estate and Gift Taxes: Economic Issues, by Jane Gravelle and Steven
Maguire. For more background on the interdependence of federal and state taxes, see
CRS Report RL30817, Federalism Through Tax Interdependence: An Overview, by
Steven Maguire.
3 The “Federal Credit of State Death Taxes” is 26 U.S.C. 2011.
4 The “net federal estate” is the estate less funeral expenses, etc.

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CRS-3
State Estate and Gift Tax Revenue
States generally impose a death-triggered tax in one of two ways. The majority of
states and the District of Columbia pick up the federal credit for state estate taxes as
described above. Others collect an independent inheritance (or succession tax) and in
most cases impose an additional estate tax to absorb any remaining federal credit. The
following explanation of the Florida estate tax, which is an exclusively “pick up” state,
appears on the Florida Department of Taxation official website:5
Florida's estate tax system is commonly referred to as a "pick up" tax. Florida picks
up all or a portion of the credit for state death taxes allowed by the federal
government. Under this system, Florida estate tax is not due unless an estate is
required to file a federal estate tax return.
In states with estate tax laws similar to Florida’s, the state estate tax will be repealed when
the federal credit is repealed. Those states are identified in Table 1 by a “no” in the
column reporting the existence of state estate taxes in 2005.
In contrast, the states that impose an independent estate tax will lose only the portion
of their estate tax that relies on the existence of the federal credit.6 In these states, the law
is usually constructed to pick-up any federal estate tax credit remaining after a state estate
tax is imposed. Generally, 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 states relative to states with only the dependent tax.
For example, 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 the “sponge” tax on its official
website as:7
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.
When the estate tax is repealed, taxpayers in the states like Pennsylvania with stand-
alone estate taxes would lose the federal credit along with the federal liability. However,
the state inheritance tax would still generate tax revenue. Because of this, 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. States with
5 The citation is from the website: [http://sun6.dms.state.fl.us/dor/taxes/estate_tax.html], site
visited July 1, 2003.
6 For more, see Federation of Tax Administrators Bulletin, Repeal of Federal Estate Tax Would
Have Effect on States, Feb. 22, 2001, Washington, D.C.
7 The site is [http://www.revenue.state.pa.us/revenue/cwp/view.asp?a=3&Q= 69002&subID=I].

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laws similar to Pennsylvania’s and states that link to the federal tax code as it existed on
a specific date (most often a date predating passage of EGTRRA) are identified in Table
1 with a “yes” in the column reporting the existence of state estate taxes in 2005.
Table 1. State Death and Gift Tax Revenue:
Average for 1992 to 2002
State Revenue from
Estate and Gift Taxes
Reliance
State
Estate and Gift Tax
as Percentage of
on Estate
Estate
State
1992 to 2002
Total Tax Revenue
and Gift
Tax in
Average
1992 to 2002
Taxes
2005
(in $000s)
Average
Rank
Alabama
45200
0.008
no
33
Alaska
2136
0.0016
no
50
Arizona
61233
0.0088
no
31
Arkansas
31153
0.0079
no
34
California
709395
0.0108
no
24
Colorado
52074
0.0093
no
30
Connecticuta
230180
0.0282
yes
4
Delaware
34478
0.0197
no
8
Dist. of Columbiab
38915
0.0139
yes
n/a
Florida
518516
0.0242
no
5
Georgia
87215
0.0077
no
35
Hawaii
19807
0.0064
no
40
Idaho
12576
0.0064
no
41
Illinois
240084
0.0125
no
18
Indiana
120645
0.0138
yes
14
Iowa
84621
0.0187
yes
9
Kansas
67206
0.0166
yes
11
Kentucky
82980
0.0126
yes
17
Louisianac
70889
0.0127
no
16
Maine
23200
0.0101
no
27
Maryland
120155
0.0134
yes
15
Massachusetts
212788
0.0169
yes
10
Michigan
129572
0.0074
no
36
Minnesota
48662
0.0044
yes
49
Mississippi
18357
0.0045
no
48
Missouri
91462
0.012
no
20
Montana
15237
0.0118
no
21
Nebraskad
14828
0.0058
yes
43
Nevada
33859
0.0108
no
23
New Hampshire
41661
0.0362
no
1
New Mexico
15168
0.0046
yes
46
New York
849286
0.0234
no
6

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CRS-5
State Revenue from
Estate and Gift Taxes
Reliance
State
Estate and Gift Tax
as Percentage of
on Estate
Estate
State
1992 to 2002
Total Tax Revenue
and Gift
Tax in
Average
1992 to 2002
Taxes
2005
(in $000s)
Average
Rank
New Jersey
358949
0.0229
yes
7
North Dakota
4755
0.0046
no
47
North Carolina
136586
0.0108
no
26
Ohio
109702
0.0066
yes
39
Oklahoma
73134
0.0145
yes
12
Oregon
40779
0.0087
yes
32
Pennsylvania
656508
0.0334
yes
2
Rhode Island
20076
0.0113
yes
22
South Carolina
36673
0.0068
no
38
South Dakota
24538
0.0318
no
3
Tennessee
72434
0.0108
yes
25
Texas
226492
0.0095
no
29
Utah
18272
0.0055
no
44
Vermont
12613
0.0124
yes
19
Virginia
100538
0.0097
yes
28
Washington
68375
0.006
yes
42
West Virginia
15697
0.0054
no
45
Wisconsin
71983
0.0069
yes
37
Wyoming
11772
0.0138
no
13
Sources: U.S. Bureau of Census, State Government Tax Collections: 1992-2002; and author’s calculations.
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.
aConnecticut is phasing out its inheritance tax; under current law, the state will move to a pick-up only tax
in 2005.
bThe District of Columbia tax data are from its FY2004 proposed budget and may not be directly
comparable to the Census data used for the states.
cLouisiana is phasing out its inheritance tax; under current law, the state will move to a pick-up tax in 2004.
dNebraska counties impose and collect a separate inheritance tax.
In addition to providing information about the existence of the state estate tax in
2005, Table 1 also provides data on the relative importance of estate and gift taxes to each
state using the average tax revenue generated by state estate taxes from FY1992 to
FY2002. The average annual revenue over 11 years is provided because state estate tax
revenue fluctuates significantly from year to year. The fluctuation is greatest in less
populated states where the death of one very wealthy resident would significantly affect
revenue collected. The final column in Table 1 reports the relative rank of states based
upon their reliance on state estate and gift taxes.
In addition to year-to-year fluctuations within states, there is considerable variation
among the states in proportion of the total state tax revenue accounted for by the estate

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tax. In Alaska, the pick-up estate tax amounts to only 0.16% of tax revenues. In New
Hampshire, on the other hand, the state’s independent inheritance tax contributes 3.62%
of the state’s total tax revenues.
The anticipated revenue loss generated by repeal of the federal estate tax could be
approximated by revenue collected in the states that will not have any type of state estate
tax in 2005. In contrast, the estate and gift tax revenue collected in states with an
independent estate tax would not accurately predict the potential revenue loss from repeal
or reform of the federal estate tax.8
8 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, State Responses to Changes Enacted
as Part of EGTRRA, Oct. 24, 2002, Washington, D.C. The report is available on the following
Web site: [http://www.taxadmin.org/fta/rate/Estatetax.html].

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