Developments in New Jersey Transfer Taxation

• In Event: Emerging Research and Research Interaction 2

Abstract

Ever since the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA ’01) caused the decoupling of New Jersey estate tax from the federal estate tax calculation, through the phasing out of the credit allowed for state death taxes paid, New Jersey, as well as other states, began to clamor for a solution to the potential loss in state revenues that the change was scheduled to bring about. New Jersey responded by creating a taxing scheme that applies the federal estate tax rules as they existed in 2001 prior to the passage of EGTRRA ’01. The effect of this not only creates a whole host of problems in applying two different tax law schemes for the same estate, it now leaves New Jersey with the most aggressive estate tax in the U.S. Indeed, of the six states in the U.S. that impose an inheritance tax, New Jersey and Maryland are the only two that also collect an estate tax. This baleful pairing of death taxes adds more than $700 million dollars to the New Jersey coffers each year.

In recent years, multiple states have begun revising their transfer tax laws in profound ways: Indiana, Kansas, North Carolina, Ohio, and Oklahoma have all repealed their death taxes in the last four years, while Illinois reinstated their estate tax in 2011. There are two legislative bills currently under consideration in New Jersey, A-3794 and S-2505 that would phase out the inheritance tax completely over a five year period. The authors of the bill do not suggest a way in which New Jersey would replace the lost revenues. This article will explore the changing landscape in U.S. transfer taxation with particular emphasis on current New Jersey challenges and planning opportunities.

Author

• Richard Marmon, Rowan University