Virginia’s estate tax set to return in 2013

This little item from the Tax Foundation ought to help shake the holiday slumber in Virginia a bit. Going over the fiscal cliff will bring back Virginia’s estate tax:

Less reported is the existence of dormant state estate taxes, ready to return on January 1, 2013 as the federal estate tax reverts to pre-2001 law. Under pre-2001 federal law, any amounts paid under a state estate tax were fully credited against federal estate tax liability; it was essentially free money for states that set up an estate tax, money that would otherwise go to the feds. This “pick up tax” or “sponge tax” structure was changed in 2001-05 to be a deduction, ending the free ride for states.

States then had the choice to retain their estate or inheritance taxes with it costing real dollars from their citizens (22 states and the District of Columbia), or repeal them (the other 28 states, plus Delaware and Ohio as of 2013, Tennessee as of 2016, and Indiana as of 2022). But some states have “zombie” tax provisions that kick into effect as soon as federal law allows the full credit again.

Guess what? Virginia’s political class, in its infinite, enduring wisdom, chose the zombie.

So add to the list of things that need to be done in the next General Assembly session a measure to end — permanently — Virginia’s estate tax.

  • SE VA MWC Alum

    It seems to me that the VA legislation got it right. If the taxpayer can get a dollar for dollar credit (thereby costing him nothing) why shouldnt VA have this tax? If you are going to pay x dollars anyway wouldnt you rather pay it to Richmond than Washington?

    • NormLeahy

      Better that neither get the money at all. Death should not be a taxable event.

      • Well, yes, that’s ideal, but if the feds decide to have an estate tax, that’s out of the legislature’s control. And if the legislature can scoop up that money before it gets to Washington, that would be the better of two bad options.

  • As I understand the credit system, I think SE has it right. Better to give it to the state rather than the Feds. The state is closer to us and more easily influenced by us.

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