Imposing an estate tax. (FE)

The bill imposes the estate tax using a graduated rate structure that is based on the highest marginal tax rate for the federal estate tax, which is 40 percent, and the amount of the federal estate tax exclusion, which is $15,000,000, adjusted annually for inflation, plus any unused federal exclusion amount of a predeceased spouse. Specifically, the bill taxes the Wisconsin taxable estate as follows:

1. The amount of the estate that is valued at less than one-third of the federal exclusion amount is not taxed.

2. The amount of the estate that is valued at one-third to two-thirds of the federal exclusion amount is taxed at the rate of 6.67 percent, which is one-sixth of the highest federal marginal rate.

3. The amount of the estate that is valued at two-thirds to the full amount of the federal exclusion amount is taxed at the rate of 13.33 percent, which is one-third of the highest federal marginal rate.

4. The amount of the estate that is valued at the federal exclusion amount or greater is taxed at the rate of 20 percent, which is one-half of the highest federal marginal rate.

The bill provides that if the federal exclusion amount is reduced or repealed, the estate tax will be imposed using the federal exclusion amount that applied in the taxable year immediately prior to the reduction or repeal.

The bill generally requires that an estate tax return be filed within nine months of the decedent’s death and full payment of the tax be made at that time as well. If qualifying farmland excluded from the estate at the time of the decedent’s death is sold or developed within the 10-year period during which qualifying family members must hold the farmland, the estate tax is imposed on the full value at the time of sale or development and is due within six months. Under the bill, the failure to file a estate tax return is subject to a penalty equal to the lesser of 5 percent of the tax due or $500 and, if tax is not paid when due, interest is charged at 12 percent.

Prior law imposed an estate tax that was structured to take advantage of a federal estate tax credit for state death taxes, which had the effect of reducing the amount of estate tax paid to the federal government by the amount paid to the state. The federal government sunsetted and eventually repealed the credit. Wisconsin’s estate tax is sunsetted for deaths occurring after December 31, 2012, unless federal law is modified to provide a federal estate tax credit for state death taxes. The bill eliminates the prior estate tax provisions, including the provision that would have revived the tax.

While the bill eliminates the prior estate tax, the bill generally contains tax administration provisions similar to those that applied under prior law, including provisions relating to the Department of Revenue’s collection authority, confidentiality protections for the estate tax return and related information, the jurisdiction of circuit courts to handle disputes, and the ability of DOR to use an arbitration panel to handle residency disputes among Wisconsin and other states.