Governor Pence Gets Big Victory on 5% Tax Cut; State Wisely Eliminates the Inheritance Tax

I apologize for not blogging lately.  I had to file 7th Circuit brief due by midnight that Civil Discourse Now co-host Mark Small and I have been working on for a few days.  I got the brief filed early - by 11:30.

Gov. Mike Pence

I did take some time out Thursday to get caught up on the news.  I saw where Gov. Mike Pence scored a victory when he secured a 5% cut for Hoosier taxpayers.   In a press release he stated:  

Today Hoosier taxpayers won a great victory. The agreement reached between our administration and legislative leaders will be the largest state tax cut in Indiana history. The combination of a 5 percent individual income tax cut, inheritance tax repeal and additional tax relief for businesses is the right tax relief at the right time and will give a much needed boost to working families, small businesses and family farms.

I am grateful for the leadership of Senate President Pro Tem David Long,  Speaker Brian Bosma and other key fiscal leaders for working diligently with our administration to craft this historic package of tax relief. Their efforts demonstrate the commitment of the General Assembly to put taxpayers first.

Cuts will also be made in the corporate tax and the state inheritance tax will be eliminated.  I am very familiar with the latter.  As an attorney who has handled estate matters,  I have had to prepare Indiana inheritance tax forms. The inheritance tax is a transfer tax, paid by the estate, but based on the relationship of the decedent to the person receiving the property or money.  The closer the relationship is between the decedent and the beneficiary, the less tax is.  A spouse usually doesn't have to pay any inheritance tax.  But if the person receiving the tax is unrelated, then the tax can be significant.

Instructions to the State forms relates how complicated figuring the tax can be:

The amount of each beneficiary’s exemption (column 4) is determined by the relationship of that beneficiary to the decedent.

The examples are as follows:

1. Surviving spouse and charitable organizations are
100% exempt.
2. Class A
parents, children, grandparents, grandchildren
and other lineal ancestors and
lineal descendants ........................... $ 100,000
3. Class B
brothers, sisters, lineal descendants of
brothers or sisters, daughters-in-law
and sons-in-law ................................ $ 500
4. Class C
anyone not listed above including but
not limited to aunts, uncles, cousins,
friends, nieces and nephews by marriage
and corporations ............................ $ 100

Then once you take out the exemptions, you also have different tax treatments for the Classes.

The inheritance tax rates are:

Class A
NET TAXABLE VALUE OF PROPERTY
INTERESTS TRANSFERRED INHERITANCE TAX
$25,000 or less..................... 1% of net taxable value
over $25,000 but not over $250, plus 2% of net
$50,000..................................... taxable value over $25,000
over $50,000 but not over $750, plus 3% of net
$200,000................................... taxable value over $50,000
over $200,000 but not over $5,250, plus 4% of net
$300,000................................... taxable value over $200,000
over $300,00 but not over $9,250, plus 5% of net
$500,000 .................................. taxable value over $300,000
over $500,000 but not over $19,250, plus 6% of net
$700,00........................................ taxable value over $500,000
over $700,000 but not over $31,250, plus 7% of net
$1,000,000 .................................. taxable value over $700,000
over $1,000,000 but not over $52,250, plus 8% of net
$1,500,000.................................. taxable value over $1,000,000
over $1,500,000 .......................... $92,250, plus 10% of net
taxable value over $1,500,000

Class B
NET TAXABLE VALUE OF PROPERTY
INTERESTS TRANSFERRED INHERITANCE TAX
$100,000 or less ....................... 7% of net taxable value
over $100,000 but not over $7,000, plus 10% of net
$500,000 ................................... taxable value over $100,000
over $500,000 but not over $47,000, plus 12% of net
$1,000,000 ................................ taxable value over $500,000
over $1,000,000 ........................ $107,000, plus 15% of net
taxable value over $1,000,000

Class C
NET TAXABLE VALUE OF PROPERTY
INTEREST TRANSFERREDINHERITANCE TAX
$100,000 or less ...................... 10% of net taxable value
over $100,000 but not over $10,000, plus 15% of the net
$1,000,000................................ taxable value over $100,000
over $1,000,000 .......................... $145,000, plus 20% of net
taxable value over $1,000,000

And that's the easy part of figuring the inheritance tax owed.

Congratulations again for Governor Pence scoring a victory for taxpayers during his first legislative session.