ET 2006-01 - Estate Tax Division Information Release – Estate
Tax Updates As A Result Of Amended Substitute House Bill 66
(HB 66) – January, 2006
The purpose of this information release is to provide a brief
summary of significant estate tax changes resulting from the
recent passage of HB 66.
Updated References to the Internal Revenue
The estate tax, chapter 5731. of the Ohio Revised Code
(R.C.), has been amended to provide a general definition of
the Internal Revenue Code (IRC) for purposes of Ohio’s estate
tax law (R.C. 5731.01(F)). This is similar to how the IRC is
referenced for both Ohio’s personal income tax (R.C.
5747.01), and corporation franchise tax (R.C. 5733.04).
As a result of the amendment to R.C. 5731.18, the Ohio
additional tax statute references a more current version of
the IRC. Because The Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA) totally repealed the
federal credit allowed for state death taxes (IRC 2011) for
dates of death occurring on or after January 1, 2005, the
Ohio Additional Tax is constructively repealed. This change
is prospective and applies to decedents dates of death
occurring on or after July 1, 2005.
In addition to the preceding, uncodified section 557.03 of HB
66 grants a temporary credit to those estates impacted by the
EGTRRA legislation. The amount of additional estate tax that
is due after application of the section 557.03 credit is the
same amount that would be due had the amendments to IRC 2011
been incorporated in 2002. This has the effect of mitigating
the excess additional estate tax claim for the difference
between any pre-EGTRRA and post-EGTRRA additional tax
R.C. 5731.181, the generation-skipping transfer tax statute,
is amended to reflect references to the IRC in its most
current version. EGTRRA amended section 2604 of the IRC to
terminate the credit allowed for generation-skipping
transfers occurring after December 31, 2004. Updating Ohio
statutory references to federal law incorporates changes in
the federal law occurring since the most recent amendment of
the Ohio statute. As a result, the Ohio Generation-Skipping
Transfer Tax is constructively repealed. This change is
prospective and applies to generation-skipping transfers
occurring on or after July 1, 2005.
Repeal of Estate Tax Deduction for Qualified
Family-Owned Business Interests.
R.C. 5731.20 previously provided for a maximum deduction not
to exceed $675,000 for qualifying family-owned business
interests. Uncodified section 612.24 of HB 66 repeals
outright the estate tax deduction for qualified family-owned
business interests. The repeal is effective for decedents
dates of death occurring on or after July 1, 2005.
Estate Tax Interest Rate Change.
R.C. 5703.47 requires the Tax Commissioner to determine, on
October 15 th of each year, the federal short-term interest
rate. The federal short-term rate rounded to the nearest
whole percent, plus three per cent, is the rate of interest
that accrues during the following calendar year for all tax
and miscellaneous statutes that require interest to be
computed at the rate per annum required by R.C. 5703.47.
Through June 30, 2005, R.C. 5731.23 required interest to be
computed at the rate per annum as mandated by R.C. 5703.47,
which includes the three per cent addition. Consequently, the
interest rate from January 1, 2005 to June 30, 2005 is based
on a calendar year rate of five (5) percent. Effective July
1, 2005, amendments to R.C. 5703.47 and 5731.23 resulting
from HB 66 redefine how interest owing on both underpayments
of estate tax and overpayments of estate tax will be
calculated. Interest on the estate tax (and personal property
tax) will now accrue at the federal short-term interest rate
without the three per cent addition. Accordingly, any portion
of the estate tax that is subject to interest from July 1,
2005 to December 31, 2005 will accrue interest based on a
calendar year rate of two (2) percent. The rate for calendar
year 2006 will be three (3) percent.