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Saturday, July 14, 2012

"Death tax" repeal measure may change income tax, too

A reader who's active in the Oregon "death tax" repeal effort was asking our opinion yesterday about whether the prospective ballot measure on the subject might have income tax consequences. We couldn't give her a legal opinion, but on a quick perusal, anybody with sharp eye can see that it probably would.

The text of the initiative measure, whose collected signatures are currently being reviewed, is here. It forbids any government unit in Oregon from imposing any "Death Tax," which it then goes on to define very broadly:

Section 2. Except as provided in sections 3 and 6 of this 2012 Act, neither the State of Oregon nor any other unit of government in Oregon shall impose a Death Tax....

Section 4. A Death Tax is:

a. Any tax imposed on the estate of any decedent, or

b. Any inheritance tax, or

c. Any tax imposed on the transfer of property, or any interest therein, to any person, where the transfer is a result of the death of a person, or

d. Any tax imposed on the transfer of property, or any interest therein, from one family member to another family member, where the family relationship between the transferor and the transferee is within the third degree of consanguinity.

It's section 4(d) that jumps right out at us. Say a taxpayer sells Oregon property at a large gain to her niece. The two of them are not close to each other, and the sale price is negotiated at arm's length. Under current law, the aunt's gain is subject to Oregon income tax. But under the measure, would it be? You could certainly argue that it wouldn't be, because to tax it would be to impose a "Death Tax" -- a tax on a transfer of property between family members within the third degree of consanguinity.

If the Oregon income tax is pre-empted by the ballot measure in such a case, the state income tax results and the federal income tax results would be different. Whatever the aunt saved in Oregon taxes, the niece may eventually have to pay to an accountant, because the niece may have to keep two income tax bases in the property she bought. If it's depreciable property, like a rental house, dual accounting would get messy quick.

Even if you think the Oregon estate tax should be repealed -- it's so easily avoided for most folks that it's almost silly -- you can do it without tinkering with the income tax. But this ballot measure is so broadly worded that such mischief certainly seems possible.

On the other hand, maybe the income tax wouldn't be considered a tax "on the transfer," since it taxes only the aunt's gain and not the full value of the property. That seems like an awful stretch of the ballot measure's words, however, and if there's any doubt about what the words mean, it's one more reason to vote no -- on top of all the other ones that the public employee unions will soon be wheeling out.

Comments (5)

No worries. The State Supreme Court will declare it unconstitutional for some reason.

So what does one suppose the consequences would be on an inherited IRA?

My brain isn't what it used to be, but if a ballot measure changes two things isn't it unconstitutional? Or was that just for measures that change the Oregon constitution?

It would seem to me that this measure clearly gets rid of the death tax, and takes away any taxes from a family member transferring property to another family member.

But I'm no attorney.

The legislature has been unwilling to reform the mess that is the OR Estate tax law to make the accounting the same as Federal. They knew it was the sensible thing to do, but they didn't want to lose the revenue (Oregon allowing for smaller exemptions than the Feds).

SO now they'll probably get a kick in the pants from this ballot measure.

The "Disconnect" (as it is called by Estate tax lawyers) between Fed & OR taxes has created an industry of spewing out trusts and complicated paper.

Maybe, Jack, your serenity-challenged, repeal-active 'reader' might faggeddaboud splitting hairs and frothing detailed facts. Rebranding Estate Taxes as 'death tax' is all a swirly of the States, having their Legislature votes and vote-buying outsourced to a private business, by ALEC.

ALEC (like the Chamber of Commerce, like the Catholic Church) ran its profitable little corruption as long as it stayed a shadowy unknown in the spirit that it started and kept on for a few years. But this is now -- ALEC exposed! -- and today ALEC's mark on Legislature material is synonymous with a swastika sticker. ALEC proves its shaming guilt in the year since media started reporting its goings-on, when its big household-name businesses, with the stigma of Big Bucks Sponsors, have breached their association and fled. Guilty; stealing peoples' Legislatures, spreading graft on legislators.

'Death tax' talk, which is irrelevant to 99% of Americans, is all an ALEC production. Shameful in every word of it.

So, dear 'reader' just nevermind needing to know the legislative language loopholes twists & detailed facts in order to make up your mind. It's an ALEC Monster and that's all you need to know that it's bad, a waste of attention, and drop it.

... but, before running ALEC out of Salem and across Oregon, get the names of persons (and their attorneys) who own and control the Sponsors funding ALEC. ... and double their taxes. but call it a 'mandated fee' for their maliciousness

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