Order Code RS20853
Updated April 8, 2005
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 FY1984 to FY2003, state
estate tax contributions ranged from 0.12% in Alaska to 3.58% in New Hampshire.
When the federal “credit for state death taxes” is changed to a deduction (beginning in
2005), 28 states, including Alaska and New Hampshire, will no longer levy estate taxes.
Several bills introduced in the 109th Congress would repeal the sunset for estate tax
repeal: H.R. 8, H.R. 183, S. 7, and S. 420. Repeal of the sunset would make repeal of
the estate tax permanent and retain other modifications to the valuation of assets at death
and gift taxes implemented by EGTRRA. 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The federal estate tax will be repealed gradually by the Economic Growth and Tax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 FY2003, state
estate and gift tax revenue was 1.22% 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.” “State estate taxes,” thus include state inheritance taxes, succession taxes,
and estate taxes.
2 U.S. Census Bureau, Governments Division, State Government Tax Collections, website
[http://www.census.gov/govs/www/statetax03.html], visited February 2005.
Congressional Research Service { The Library of Congress

---

CRS-2
Overview
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 was a
schedule of 21 gradually increasing rates beginning at 0% and eventually reaching 16%.
The rates were levied on the value of the net federal estate less a $60,000 exemption (the
remainder was called the adjusted taxable estate). The top credit rate of 16% applied 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 January 1, 2005, 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, after EGTRRA, state estate taxes impose a “real” tax
liability or burden.
In addition, the applicable exclusion amount for federal estate taxes increased to $1.5
million for 2004 and 2005. 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. If repeal of the federal estate tax is made permanent, the estates
of those dying in states with a free standing estate tax would still pay state estate taxes.
According to a recent survey, 22 states and DC would have had a freestanding estate or
inheritance tax in 2005 (see Table 1).3 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 likely influenced the decoupling decision. DC and 15 of the 22 states
with an estate tax in 2005 were above the median state reliance in FY2003.
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 on current estate and gift tax law, see CRS Report 95-416, Federal
Estate, Gift, and Generation-Skipping Taxes: A Description of Current Law, by John
Luckey.
3 Joel Michael, “A Survey of State Responses to EGTRRA’s Estate Tax Changes,” State Tax
Notes, May 3, 2004, pp. 345-359.

---

CRS-3
State Estate and Gift Tax Revenue
Before 2005, states imposed death-triggered taxes in one of two ways. Most states
and the District of Columbia picked up the federal credit for state estate taxes as described
above. Others collected an independent inheritance (or succession tax) and in most cases
imposed 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, appeared on
the Florida Department of Taxation official website:4
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.5 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:6
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
4 The citation is from the website: [http://sun6.dms.state.fl.us/dor/taxes/estate_tax.html], site
visited July 1, 2003.
5 For more, see Federation of Tax Administrators Bulletin, Repeal of Federal Estate Tax Would
Have Effect on States, Feb. 22, 2001, Washington, D.C.
6 The site is [http://www.revenue.state.pa.us/revenue/cwp/view.asp?A=3&Q=205803], visited
February 22, 2005.

---

CRS-4
greatest in states with an independent inheritance tax like Pennsylvania’s. States with
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 1984 to 2003
Estate and Gift
State Revenue from
Reliance
Taxes
State
Estate and Gift Tax
on Estate
as Percentage of
Estate
State
1984 to 2003
and Gift
Total Tax Revenue
Tax in
Average
Taxes
1984 to 2003
2005
(in $000s)
Rank
Average
Alabama
32,068
0.63%
no
38
Alaska
1,651
0.12%
no
50
Arizona
47,228
0.78%
no
33
Arkansas
23,118
0.64%
no
37
California
540,982
0.93%
no
29
Colorado
37,463
0.78%
no
34
Connecticut
203,821
3.22%
yes
3
Delaware
26,775
1.78%
no
10
Dist. of Columbiaa
38,153
1.35%
yes
n/a
Florida
381,778
2.05%
no
7
Georgia
64,746
0.67%
no
36
Hawaii
15,282
0.57%
no
40
Idaho
8,573
0.49%
no
44
Illinois
178,707
1.06%
yes
20
Indiana
99,490
1.29%
yes
15
Iowa
74,534
1.98%
yes
9
Kansas
54,714
1.64%
yes
11
Kentucky
72,329
1.35%
yes
14
Louisiana
58,278
1.16%
no
18
Maine
19,349
1.02%
no
22
Maryland
94,703
1.19%
yes
16
Massachusetts
213,786
2.05%
yes
8
Michigan
112,592
0.79%
no
32
Minnesota
41,446
0.43%
yes
48
Mississippi
15,739
0.49%
no
43
Missouri
67,027
1.01%
no
23
Montana
12,367
1.18%
no
17
Nebraska
10,694
0.48%
yes
45
Nevada
23,043
0.82%
no
31
New Hampshire
33,728
3.58%
no
1
New Jersey
296,078
2.20%
yes
5
New Mexico
12,017
0.43%
no
47

---

CRS-5
Estate and Gift
State Revenue from
Reliance
Taxes
State
Estate and Gift Tax
on Estate
as Percentage of
Estate
State
1984 to 2003
and Gift
Total Tax Revenue
Tax in
Average
Taxes
1984 to 2003
2005
(in $000s)
Rank
Average
New York
673,942
2.05%
yes
6
North Carolina
112,597
1.13%
no
19
North Dakota
3,807
0.41%
no
49
Ohio
84,523
0.58%
yes
39
Oklahoma
60,925
1.41%
yes
12
Oregon
33,898
0.94%
yes
28
Pennsylvania
549,324
3.30%
yes
2
Rhode Island
19,442
1.35%
yes
13
South Carolina
34,124
0.76%
no
35
South Dakota
19,775
3.01%
no
4
Tennessee
58,611
1.05%
yes
21
Texas
185,030
0.95%
no
26
Utah
13,459
0.46%
no
46
Vermont
9,080
0.94%
yes
27
Virginia
77,711
0.85%
yes
30
Washington
53,581
0.54%
yes
42
West Virginia
13,727
0.55%
no
41
Wisconsin
76,893
0.99%
yes
25
Wyoming
8,571
1.00%
no
24
Sources: U.S. Bureau of Census, State Government Tax Collections: 1984-2003; Joel Michael, “A Survey
of State Responses to EGTRRA’s Estate Tax Changes,” State Tax Notes, May 3, 2004, pp. 345-359; and
author’s calculations.
a. The District of Columbia tax data are from its FY2004 proposed budget and represent the average for
1992 through 2003. If DC were a state, it would have been approximately 14th on the reliance index.
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 FY1984 to
FY2003. The average annual revenue over 20 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 over this 20-year time period.
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
tax. In Alaska, the pick-up estate tax amounts to only 0.12% of tax revenues. In New
Hampshire, on the other hand, the state’s independent inheritance tax contributes 3.58%
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

---

CRS-6
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.7
7 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
website: [http://www.taxadmin.org/fta/rate/Estatetax.html].

---