The Supreme Court of the State of Washington ruled last week that the state's estate tax must go. In a unanimous decision, the court declared that the tax, which is based on a calculation related to the federal estate tax, could no longer be collected. The federal estate tax is being phased out over a 10-year period ending in 2010.
"We concluded that when an estate has no federal estate tax, there is no obligation to pay any state estate tax," stated the court in its decision.
The decision affects estate taxes paid in 2002 and to date, and Washington officials estimate the state will be required to refund about $152 million in estate taxes as a result of the ruling. In addition, analysts estimate that Washington will lose an additional $279 million over the next two years due to the elimination of the estate tax.
Washington's Governor Christine Gregoire plans to present the legislature with a budget that trims expenses and does not require any new taxes, however the state is already projecting a $1.8 billion budget shortfall. Many lawmakers agree that either services will have to be cut or taxes will have to be raised as a result of this unexpected reduction in available funds for the state.
Senator Margarita Prentice (D-Renton), chairwoman of the Senate Ways and Means Committee claims additional taxes are unavoidable. "No rational person can avoid the obvious," she said.
Some legislators suggest the solution is a new estate tax in Washington. The court's ruling does not prevent the creation of such a tax as long as any new estate tax is not tied to the federal tax code.
Washington Representative Dan Roach (R-Bonney Lake) applauds the repeal of Washington estate tax. "No question it will make it harder to balance the budget," he said, "but they shouldn't have collected it in the first place."