INFORMATIONAL MEETING

 

TAPES 32 A-B, 33 A

 

HOUSE REVENUE COMMITTEE

FEBRUARY 7, 2005   1:30 PM   STATE CAPITOL BUILDING

 

Members Present:                      Rep. Tom Butler, Chair

                                                Rep. Vicki Berger, Vice-Chair

                                                Rep. Mark Hass, Vice-Chair

                                                Rep. Brian Boquist

                                                Rep. Sal Esquivel                                       

                                                Rep. Larry Galizio

                                                Rep. Betty Komp

                                                Rep. Andy Olson

                                                Rep. Chuck Riley

                       

 

Witnesses Present:                      Jeffrey M. Cheyne, Attorney

                                                Douglas Henne, Oregon Society of CPAs

 

 

Staff Present:                          Paul Warner, Legislative Revenue Officer

                                                Lizbeth Martin-Mahar, Economist

                                                Kristi Bowman, Committee Assistant

                                               

                                               

 

TAPE 32, SIDE A

002

Chair Butler

Calls meeting to order at 1:31 p.m.

 

 

 

005

Paul Warner

Gives brief overview of estate tax that will be discussed in today’s meeting.

 

 

 

025

Lizbeth Martin-Mahar

Slide presentation: Oregon Estate Tax Orientation (Exhibit 1)

 

 

 

035

Martin-Mahar

Slide: Transfer Tax Definitions

 

 

 

050

Chair Butler

Clarifying question regarding a decedent who owns property in several states that have differences in their estate tax laws—do they only pay on property in OR?

 

 

 

058

Martin-Mahar

Responds yes. If the decedent’s primary residence was OR, then they would also pay tax on intangibles such as stocks and bonds. This distinction will become more important when discussing neighboring states’ discontinuance of estate tax.

 

 

 

065

Martin-Mahar

Continues tax definitions slide discussion.

 

 

 

089

Martin-Mahar

Slide: OR Estate Tax Collections 1970 - 2004

 

 

 

157

Martin-Mahar

Slide: HB 3072 (2003 Oregon Estate Tax Changes)

 

 

 

228

Chair Butler

Asks for Martin-Mahar’s opinion on HB 3072 and its implications on the recent lawsuit in Washington.

 

 

 

230

Martin-Mahar

Responds that there were discrepancies in the previous law. Refers to the handout of the Washington legal opinion issued 02/03/05 (Exhibit 2). In 1981 there was an initiative passed in Washington that said the state would phase out their inheritance tax and put in a federal pick-up tax instead. WA wouldn’t be imposing anything larger than the federal rate. This resulted in a discrepancy for taxpayers—if they didn’t pay a WA tax, then they would not have to pay the federal tax. Secondly, there hadn’t been any new legislation in WA since 2001 to clarify that discrepancy, and OR had similar language at that time. In 2003 OR passed HB 3072 to prevent those discrepancies. OR has a connection with the Taxpayer Relief Act of 1997.

 

 

 

266

Rep. Galizio

Asks about the term “death tax” used during presentation.

 

 

 

271

Martin-Mahar

Responds that this term has become part of the lexicon. That wording is not in the state statute.

 

 

 

302

Chair Butler

Asks clarifying question. When people file a federal return, is the     $1 M maximum for OR a deduction against the death tax on the federal return?

 

 

 

313

Martin-Mahar

Responds that at the federal level the taxpayer is going to receive a credit, but it is going to be phased out.

 

 

 

336

Martin-Mahar

Slide: Federal Estate Tax Rate Schedule – 2004

 

 

 

374

Martin-Mahar

Slide: Federal Law Schedule for State Death Tax Credit

 

 

 

TAPE 33, SIDE A

010

Martin-Mahar

Slide: Change in Tax for $1 M Taxable Estate

 

 

 

051

Martin-Mahar

Slide: Change in Tax for $5 M Taxable Estate

 

 

 

074

Martin-Mahar

Slide: Examples: OR Estate Tax and Effective Tax Rate on Estates – Tax Year 2004

 

 

 

092

Rep. Hass

Comments that taxpayers with an estate value exceeding $850,000 would make charitable contributions to bring their tax liability down.

 

 

 

094

Martin-Mahar

Responds that this trend is more common today, and that most people with large estates have estate planners helping them make those decisions.

 

 

 

105

Martin-Mahar

Slide: Examples: OR Estate Tax and Effective Tax Rate for Gross Estate Values above $850 K and less than $1 M – Tax Year 2004

 

 

 

126

Martin-Mahar

Slide: Number of OR Estate Tax Returns by Tax and Year

 

 

 

143

Martin-Mahar

Slide: Components of US Gross Estate Value – Tax Year 2002

 

 

 

156

Martin-Mahar

Slide: Number of Returns for Tax Year 2002 and 2003

 

 

 

171

Martin-Mahar

Slide: Total OR Estate Tax Paid for Tax Year 2002 and 2003. The group with taxable estate value over $3.5 M pays 63% of all returns.

 

 

 

216

Martin-Mahar

Slide: Estate Tax Biennium Revenue Forecast: 2001-03 to 2009-11

 

 

 

220

Rep. Berger

Asks about how the forecast is derived.

 

 

 

222

Martin-Mahar

Responds that long-term trends are reviewed to derive this information.

 

 

 

245

Martin-Mahar

Slide: Other States’ Estate Taxes. Most of the 28 states that have connected to the 2001 EGTRRA changes are in the west.

 

 

 

296

Chair Butler

Announces committee business for the rest of the week. Hearings will start at 1:00 p.m. beginning 2/14/05.

 

 

 

358

Jeffrey Cheyne

Mr. Cheyne provides expert testimony on estate taxes. Uses handout: OR Estate/Inheritance Tax Changes HB 2293 (Exhibit 3).

TAPE 32 SIDE B

009

Cheyne

Slide: Common Taxpayer Understanding (2 slides)

 

 

 

019

Cheyne

Slide: Unexpected Tax Bill

 

 

 

035

Cheyne

Slide: Dual Focus – OR and Federal

 

 

 

047

Cheyne

Slide: 2005 Estates

 

 

 

051

Cheyne

Slide: Married Couple Issue (Existing Credit Shelter Trusts) (2 slides)

 

 

 

068

Cheyne

Slide: Partial State QTIP (2 slides)

 

 

 

106

Cheyne

Slide: Oregon Special Marital Property

 

 

 

112

Cheyne

Slide: Discretionary Exemption Trusts

 

 

 

128

Cheyne

Slide: 2005 Proposed Legislation – HB 2293 (2 slides)

 

 

 

141

Chair Butler

States that while HB 2293 has been assigned to the House Revenue committee, the “relating to” clause of HB 2293 needs to be revised before being considered.

 

 

 

170

Chair Butler

Comments that if OR connected back to the federal system, it would make the filing of inheritance taxes much simpler.

 

 

 

184

Douglas Henne

Mr. Henne provides expert testimony on estate taxes. Discusses these issues: 1) Administrative difficulties; 2) the incremental tax rates pertaining to estate taxes. This is a difficult concept to explain to inheritors of smaller estates.

 

 

 

258

Chair Butler

Makes additional comments on incremental tax rates currently in place.

 

 

 

285

Chair Butler

Asks Mr. Cheyne about QTIP language that is already set up in a will. (QTIP = Qualified Terminal Insurance Property, pertaining to certain types of estate trusts). Is the $650,000 available for an OR qualified QTIP?

 

 

 

290

Cheyne

Responds that it generally is, subject to some possible court modifications, or if the language is in the will to qualify a trust for QTIP or marital deduction. Further discussion on this issue continues between Chair Butler and Mr. Cheyne.

 

 

 

321

Henne

Continues discussion. Additional issues: 3) Cost and time devoted to preparing OR return concerning estate taxes; 4) Ability to gift before death and its impact on OR estate tax.

 

 

 

375

Chair Butler

Asks Mr. Henne whether he thinks that HB 2293 would remove any of the complexities with the current law.

 

 

 

380

Henne

Responds yes.

 

 

 

393

Chair Butler

Asks Mr. Henne if he agrees with the allocation of assets as shown in Martin-Mahar’s components slide (slide 12).

 

 

 

410

Henne

In his experience with small to medium size estates, a fair amount of their assets are in stocks, bonds, and other intangibles, so the impact of OR estate taxes are minimal.

 

419

Rep. Riley

Asks Mr. Cheyne his opinion of HB 2293 in reducing the complexities of the current law.

 

 

 

425

Cheyne

Responds that HB 2293 is focused on a very specific problem; namely, existing credit shelter trust that wouldn’t qualify for a state QTIP election. While HB 2293 solves that problem, the bill doesn’t address the larger picture of solving complexities.

 

 

 

TAPE 33 SIDE B

015

Rep. Hass

Asks Mr. Henne about the number of occurrences he has seen of having to “sell the family farm” to pay inheritance tax.

 

 

 

025

Henne

Responds that for those with significant assets the OR tax is not so onerous that it would force them to sell the family farm. There are certain states, however, that he would not recommend because of their higher rate. Generally those people with significant assets have already done estate planning to save their heirs from significant inheritance tax.

 

 

 

048

Rep. Boquist

Asks Mr. Henne about how many farmers his firm represents.

 

 

 

050

Henne

Responds that he has approximately a dozen farmers as clients. Most of his clients in Klamath Falls have large agricultural holdings and are most affected by the current law.

 

 

 

060

Cheyne

Comments that the federal and state laws need to be reconnected in order to resolve the many inconsistencies and complications in place now.

 

 

 

070

Chair Butler

Adjourns meeting at 3:00 p.m.

 

 

Tape Log Submitted by:

Reviewed by:

 

 

 

Kristi Bowman, Committee Assistant

Kim Taylor James, Committee Coordinator

 

Exhibit Summary:

1. Slide presentation: Oregon Estate Tax Orientation, Martin-Mahar, 8 pp., 02/07/05

2. Handout: Washington Opinion Information Sheet, Martin-Mahar, 7 pp., 02/03/05

3. Handout: Oregon Estate/Inheritance Tax Changes, Cheyne, 10 pp., 02/07/05