May 28, 2013 at 4:02 PM
State to start sending out millions in estate tax refunds
The state Department of Revenue plans to start issuing millions of dollars in refund checks soon to comply with a 2012 state Supreme Court ruling that allows certain married couples to escape Washington’s estate tax.
The agency had been holding off on the refunds in case the Legislature passed a law that lets the state keep the taxes. The agency said it was “giving deference to the legislative process.”
But those delays were challenged and several lower court rulings have ordered the state to begin issuing refunds, said Mike Gowrylow, a DOR spokesman. “We’ve decided that we can’t hold off any longer and will begin refunding the money,” he said.
Gowrylow said the agency has gotten about 70 refund requests to date that are worth between $40 million to $50 million. He expects all the checks to go by the end of June.
The state House, which is controlled by Democrats, plans to move legislation this week that would make changes to the estate tax law to prevent such refunds in the future. It’s not clear if the Senate, controlled by Republicans, will go along.
Any change made by the Legislature would not allow the state to recoup money once it’s been sent out, Gowrylow said. “Any checks we cut that will effectively close the case and those people will get their refunds and we won’t be able to recover that,” he said.
The estate-tax case deals with something called a Qualified Terminable Interest Property trust. It allows a spouse to transfer assets tax free to a surviving spouse and then onto other heirs upon the death of the surviving spouse.
Under federal law the value of the trust was taxed only when the surviving spouse died. That also was the case in Washington until the state Supreme Court decision.
As a result of the court decision, the estate also cannot be taxed when the surviving spouse dies under this kind of trust, according to the Department of Revenue.
There’s some disagreement over the effect of the court ruling. Several private tax attorneys contend that it was relatively narrow in scope and only affected estates where one of the spouses died before May 17, 2005.
DOR argues the effect of the ruling is broader and effectively eliminates the estate tax for couples who create such trusts, even after 2005.
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