Pennsylvania Budget Follow-Up: The Elimination of the Death Tax on Small Businesses

         

           As part of the Commonwealth’s fiscal year 2013 budget approved June 30, Pennsylvania has eliminated inheritance taxes on certain small businesses. 

The budget was approved by the General Assembly, in which Republicans hold a majority, and signed into law by Governor Tom Corbett, also a Republican.  The measure to eliminate the death tax for small businesses attracted strong bipartisan support.

Under Pennsylvania’s new inheritance tax law, to be generally qualified as exempt from the inheritance tax, a small business must have less than a $5 million net worth and employ fewer than 50 full-time employees and the business must be transferred to a spouse, lineal or collateral descendant. 

As I had noted last year, Pennsylvania had already eliminated them on family farms.  See my post from August of 2012, Governor Corbett Abolishes Pennsylvania’s Death Tax for Family Farmers, http://williamcinfici.blogspot.com/2012/08/governor-corbett-abolishes.html.  In that post, I urged that the tax be eliminated on businesses, especially small businesses that require a significant amount of land to operate.  As with family farms, many owners had to sell off all or parts of their businesses in order to pay the inheritance tax.  Pennsylvania’s inheritance tax ranges from 4.5% to 15%, depending on the relationship of the heir to the decedent. 

The Keystone State’s death tax is especially burdensome because all inherited assets are subject to the tax, whereas the United States and most other States in the Union that impose an inheritance tax allow a significant exemption.  A typical example in other States is to exempt the first $100,000 dollars of assets.

The death tax was supposed to be phased out completely for all Pennsylvanians and was reduced for lineal descendants from 6% to the lowest rate many years ago, but no further action had been taken until these two measures to ease the burden for family enterprises.

           I praise the General Assembly and Governor for enacting these tax reforms.  These tax cuts should boost the economy, make Pennsylvania more competitive in attracting and maintaining businesses, and even reduce suburban sprawl.  I call upon them to phase out the death tax completely for all Pennsylvanians.