STATE HOUSE – January 16, 2013 – (RealEstateRama) –– While Florida offers retirees warm weather, nice beaches and golf, it also presents the opportunity to significantly reduce one’s overall tax burden, according to an article on estate planning in a recent edition of the Rhode Island Bar Journal. The article’s authors go on to say that “in many instances, the tax savings alone for a Rhode Island client moving to Florida will cover the expense of living in the Sunshine State.”
A portion of that Rhode Island tax burden is the estate tax, also known as the inheritance tax or “death tax.” Although often justified as being paid only by the wealthy who can most easily afford it, Rep. Robert E. Craven knows that, because of sophisticated estate planning techniques, the tax has little if any impact on the very wealthy.
“The true burden of this tax falls on small business owners, small farms, owners of forest and shoreline property, people who don’t have the resources to employ some of those estate planning techniques – or to move to Florida to avoid the tax altogether. It falls heavily on the children of deceased parents whose estates were not really all that large,” he said.
For those whose inherited wealth is in the form of farmland, forestland or other open tracts of land in Rhode Island, the burden of the estate tax adds to the pressure on the new generation owners to sell off portions of the land to pay the tax, thereby obliterating more and more of the state’s dwindling open space.
Representative Craven (D-Dist. 32, North Kingstown) has again this year introduced legislation that he hopes will offer a level of fairness to those presented with an estate tax bill. His legislation, (2014-H7064), would raise the threshold above which the tax can be applied to $2 million. (While existing law set a threshold of $675,000 when it was enacted, that has grown today to about $921,000 as a result of annual adjustments tied to the consumer price index. Those CPI adjustments would continue to be applied if the Craven legislation is enacted.)
“We all know that the value of most things, especially land and businesses, has increased significantly over the years and often well beyond annual CPI adjustments,” said Representative Craven. “A $2 million threshold is not only what I would consider just, but it is also a more appropriate figure for today’s economic reality.”
“I believe our state’s unrealistic estate tax limit is part of the explanation for 24,000 people leaving Rhode Island during the past decade or so for more tax friendly locations,” he said. The Rhode Island “death tax” has always been and continues to be one of the least significant sources of revenue in the state budget, said Representative Craven, “while at the same time hurting small businesses or moderate-income families who may have some land assets to pass on to their children. This tax is not just about the state collecting money; it is about putting unnecessary financial burdens on inherited small businesses.”
State officials should also acknowledge, said Representative Craven, that “if these individuals leave Rhode Island to avoid this tax, the state is also losing tax revenues on the income and pensions of these individuals for the rest of their lives, likely a more significant amount than what would be generated from the estate tax.”
The state Division of Taxation estimates that the estate tax will generate about $32 million in revenue in the current budget year.
The Greater Providence Chamber of Commerce, which has been lobbying for an estate tax hike to $3 million, said it nonetheless supports Representative Craven’s $2 million proposal to “bring our state more in line with others and greatly reduce a burdensome tax on our middle-class families.”
A $2 million threshold, Representative Craven believes, “is a fair compromise because the state can still collect revenue on the larger, much more valuable estates but by exempting the smaller estates, we can play a valuable role in saving small businesses and preserving farms and forests and land along the shore, and allowing Rhode Islanders who want to stay in Rhode Island to do so.”
The legislation has been referred to the House Committee on Finance. Co-sponsors include House Majority Leader Nicholas A. Mattiello (D-Dist. 15, Cranston), Rep. Gregory J. Costantino (D-Dist. 44, Lincoln, Johnston, Smithfield), Rep. Arthur J. Corvese (D-Dist. 55, North Providence) and Rep. Dennis M. Canario (D-Dist. 71, Portsmouth, Little Compton, Tiverton).
For more information, contact:
Randall T. Szyba, Publicist
State House Room 20
Providence, RI 02903