INFORMATIONAL MEETING

 

TAPE 71-AB, 72-A

 

HOUSE REVENUE COMMITTEE

MARCH 7, 2003   9:00 AM   STATE CAPITOL BUILDING

 

Members Present:                        Representative Lane Shetterly, Chair

                                                Representative Wayne Scott, Vice Chair

                                                Representative Joanne Verger, Vice Chair

                                                Representative Vicki Berger

                                                Representative Mark Hass

                                                Representative Elaine Hopson

                                                Representative Max Williams                                               

 

Members Excused:                      Representative Pat Farr

                                                Representative Phil Barnhart

                                                Representative Mark Hass

 

Witness Present:                        Debra Buchanan, Oregon Revenue Department, DOR

                                                Doug Henne, Certified Public Accountant

                                                J.L. Wilson, National Federation of Independent Business

                                                Christina McNitt, Oregon Small Woodlands Association.

                                                Michael Gaudern, Oregon Small Woodlands Association

                                                Casey VanNatta, VanNatta Logging

                                                Ron Bailey, Attorney

                                                Chuck Sheketoff            , Oregon Center for Public Policy

 

Staff Present:                            Paul Warner, Legislative Revenue Office

                                                Lizbeth Martin-Mahar

                                                Kathy Tooley, Committee Assistant

 

TAPE 1, SIDE A

004

Chair Shetterly

Calls meeting to order at 9:07 a.m.

 

 

006

Chair Shetterly

Discussed scope of meeting as policy overview and general discussion on inheritance tax issues/options and connection-disconnection with federal estate tax laws.

 

016

 

100

 

 

108

 

 

 

114

 

 

 

130

 

134

 

 

139

 

 

Debra Buchanan

 

Buchanan

 

 

Buchanan

 

 

 

Buchanan

 

 

 

Buchanan

 

Buchanan

 

 

Buchanan

 

 

Provided history on Oregon Inheritance Tax relationship to upcoming bills.

 

Discussed 2001 Economic Growth and Tax Relief Reconciliation Act, and affect on Oregon Estate Taxes

 

Discussed June 2001 Legislative Counsel’s advice, regarding automatic rolling ties to changes in Federal Estate Tax.  Oregon is tied to law as it was in effect on April 1997.

 

DOR reviewed finding post-session and determined there were issues in relation to timing of exclusion increases and administration of the program.  The affect may be underreporting on returns from 1998 through 2001.

 

Discussed 3 year statute of limitations for individual income tax. 

 

Discussed repeal of 6 year statute of limitations on estate taxes.  Legislative intent was to replace it with a 3 year statute of limitations, but did not.

 

Discussed difference in collection and assessment procedures.  May be able to go back to 1985 and assert additional taxes against estates that have underpaid.  Legal advice is to comply with statutes as written.  DOR is asking the Legislature for guidance on collecting underpaid taxes on closed estates.

 

170

Buchanan

Discussed current steps a CPA would be advised to follow to determine whether a return is necessary to be filed on an estate.

 

192

Rep. Verger

Discussion of tax returns prepared under the assumption that the Legislature had adopted the TRA 1997 changes.

 

195

 

 

Buchanan

DOR discussed possible findings with Attorney General if DOR were to assess additional tax against an estate going back to 1998. Odds of prevailing in court if sued characterized as not good.

 

210

Doug Henne

Discussed uncertainty on behalf of CPAs regarding reopening estates for back taxes. Do not know if required to go back to old estates and redo returns, and how future returns should be prepared..

 

243

Rep. Verger

Is there anything in a person’s estate that has not had tax paid on it already?

 

261

Henne

Retirement fund monies; installment sales; income in respect of a decedent; and cash sales, where money has not been received yet.

 

277

Rep. Verger

What kind of business transaction would cash sales be?

 

275

Henne

Where a bill is prepared and sent to a client, income is not reported until cash is received.

 

299

 

 

 

 

 

 

 

 

390

J.L. Wilson

 

 

 

 

 

 

 

 

Wilson

This is a small business issue, impression exists that this affects the rich.  For small business owner, investment in business is a primary form of savings.  Discussed themes:

 

·         Notion this only affects wealthiest 2% is erroneous.

·         People who pay death tax in another form, divert resources from family business to avoid estate tax.

·         Families taxed twice, including after tax dollars.

 

Discussed examples of family estates worth million dollars to demystify idea of associated cash flow. Investment is tied up in buildings, land and equipment.  What would have to be sold off to pay for estate tax liability?

 

 

TAPE 72, SIDE A

 

020

Wilson

Because of “Death Tax”, 70% of small businesses do not make it through a second generation; 90% do not make it through a third generation; 60% of Oregon estates are valued at less than $1.5 million

 

057

Christina McNitt

Provided perspective on how estate tax can affect environmental policies and “perverse incentives” provided by the tax.

 

070

Michael Gaudern

Discussed environmental perspective, (Exhibit 2) and (Exhibit 3). Discussed environmental and social benefits of family small woodland ownerships and risks to second generations by estate tax.  Small woodland owners cut trees earlier than preferred management practice in order to pay taxes.

 

100

Casey VanNatta

Provided video presentation of Columbia County timber owner who owned 600 acres and died in 2001, leaving $1.5 million tax liability. Family had to clear cut ahead of schedule to pay estate taxes, resulting in a loss of environmental, wildlife values.

 

251

 

 

Ron Bailey

Former Chairman of Estate Planning Division of the Oregon State Bar.  The bar doesn’t have a position at present.

 

273

 

 

300

Bailey

Discussed problems of estate planners associated with disconnect between federal and state inheritance tax law.

 

Discussion regarding confusion and planning issues involved with estate taxation on property passing to a surviving spouse, and on second death.

 

320

Bailey

Need to review other states that are disconnecting from federal law, do not want migration to states with less burdensome inheritance tax.

 

338

Chair Shetterly

Do you know what Washington State has done?

 

340

Bailey

Understand they have imposed $700,000 as the level above which they will impose taxes.

 

347

Buchanan

Connected pre re-repeal.  It is $700,000.

 

360

Chuck Sheketoff

Presented “Taxing So Few: Why Oregon Should Reform, Not Repeal, the Progressive Estate Tax”, (Exhibit 4), “Retaining a State Estate Tax:  Suggested Legislative Language”, (Exhibit 5), “Inheriting the Farm”, (Exhibit 6). Testified that proper planning could limit estate tax payment and having to “sell the farm”.

 

 

TAPE 71, SIDE B

 

055

Sheketoff

HB 2184 should be amended to continue the Taxpayer Relief Act of 1997, with a $1 million exemption as of 2005.

 

093

Rep. Verger

Did you say that most Oregon taxes are paid by the lowest income?

 

094

Sheketoff

No, OTIM and ITAP models show the lowest income Oregonians have the highest tax burden.

 

097

Chair Shetterly

Aside from revenue impact, isn’t policy issue of an estate really a federal policy, not much policy consideration at the state level?

 

105

Sheketoff

Disagree, discussed book by Bill Gates, Sr, entitled “Wealth in our Common Wealth”, Position is that society helps people make their wealth and this is a way of giving back to society.

 

127

Sheketoff

Because of stepped up basis, not necessarily.  If individual did not sell stock, taxes were not paid, it went up in value.

 

130

 

Questions and discussion regarding double payment of taxes.

 

180

 

Discussion regarding raising exemption to $3.5 million.

 

207

 

Questions and discussion regarding charitable giving.

 

227

 

 

Discussion regarding Congressional resolutions.

 

270

 

 

Questions and discussion regarding stepped up basis.

 

322

Chair Shetterly

Meeting adjourned at 10:22 a.m.

 

 

 

 

 

Tape Log Submitted by,

 

 

 

Kathy Tooley, Committee Assistant Reviewed by Kim Taylor James

 

Exhibit Summary:

1.       Buchanan, “Oregon Inheritance Tax History”, 5 pages

2.       Gaudern, “Nov 18, 2002 Press Release:  A Lifetime of Caring Brings Rewards as Oregon Family Wins National Forest Competition”, 4 pages

3.       McNitt, Gaudern “Sustaining Oregon’s Family Forestlands”, 16 pages

4.       Sheketoff, “Taxing so Few:  Why Oregon Should Reform, Not Repeal, the Progressive Estate Tax”, 8 pages

5.       Sheketoff, “Retaining a State Estate Tax:  Suggested Legilsative Language”, 4 pages

6.       Sheketoff, Capital Press Article:  “Inheriting the farm, Planning key to avoiding “death tax”, 1 page