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Report of the Estate Planning, Trust and Probate Law Section

To the Council of Delegates:

The EPTPL Section proposes an amendment to the Ohio additional estate tax, RC 5731.18, to resolve the present uncertainty of its application. Practitioners were alerted to the uncertainty by notices in the OSBA Report of Sept. 29. 2003, in Ohio Lawyer November/December 2003, in local bar publications and on the OSBA Web site. The legislation is intended to avoid the cost and delay of years of litigation between numerous estates and the Ohio Dept. of Taxation.

There are two Ohio estate taxes, the so-called regular tax levied by RC 5731.02 with which most of us are familiar since its exemption amount has traditionally been low so that it applies to most estates, and the additional tax levied under RC 5731.18. The additional tax was enacted early in the last century to soak up the difference, if any, between the credit allowed against the federal estate tax for state death taxes and the amount of the regular tax. In EGTRRA 2001, the Congress repealed the credit allowed against the federal estate tax for state death taxes, phasing out over years 2002–2005. The federal enactment raised the question whether Ohio would continue collecting the additional tax, when there was no more difference to soak up.

The General Assembly has not spoken further, so the question is one of interpretation of the existing statute. The Ohio Dept. of Taxation has taken the position that under it the Ohio additional tax is decoupled from the federal tax and frozen at its pre-EGTRRA rates. Taxpayers have taken the position that under it the tax is phased out. ODT has issued adjustment notices in a substantial number of estates, and a number of appeals have been taken by filing exceptions in the local probate courts.

The OSBA has previously resolved to support repeal of the Ohio estate tax, and phaseout of the additional tax is consistent with this position. Taxpayers are not paying the tax because if they do, and the tax is not sustained, there may be no refund; and if there is a refund, its timing is quite uncertain and there may be no interest allowed on it. We believe that the courts will confirm that the tax is not due. Taxpayers should not be required to litigate through three levels of courts to determine the effect of the tax on them. Legislation can solve this mess retroactively only by clearly phasing out the tax; legislation confirming application of the tax could apply only prospectively.

Respectfully submitted,
Andrew L. Fabens, Cleveland
Chair

Section 1. That section 5731.18 be amended to read as follows:

Sec. 5731.18.

(A) In addition to the tax levied by section 5731.02 of the Revised Code, a tax is hereby levied upon the transfer of the estate of every person dying on or after July 1, 1968, who, at the time of his or her death was a resident of this state, in an amount equal to the maximum credit allowable actually allowed to the estate[by subtitle B, chapter 11 of the Internal Revenue Code of 1954, 26 U.S.C. 2011, as amended,] against its federal estate tax for any taxes paid to any state.

(B) The tax levied on any estate under this section shall be credited with the amount of the tax levied under section 5731.02 of the Revised Code and with the amount of any estate, inheritance, legacy, or succession taxes actually paid to any state or territory of the United States or to the District of Columbia on any property included in the decedent’s gross estate for federal estate tax purposes.

(C) The additional tax levied under this section shall be administered, collected, and paid as provided in section 5731.24 of the Revised Code.

Section 2. That existing section 5731.18 of the Revised Code is hereby repealed.

Section 3. The General Assembly recognizes the principle of the ruling in Dery v. Lindley, (1979) 57 Ohio St. 2d 5 as correctly interpreting its legislative intent in enactment of section 5731.18 by 1983 HB 291 and amendment by this act to adopt the amount of the state death tax credit actually allowed to the estate of the decedent against its federal estate tax as the yardstick for determination of the tax levied by section 5731.18.

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