Minnesota One of 13 States still Imposing Death Tax

Published On: 20th August 2015

From the internet

Many states have done away with their death tax, but there are thirteen left and Minnesota is one of them.

What is the death tax?

It is one that the heirs are responsible for, which means they divert part of their inheritance to the government instead of being able to keep it.

Many states repealed their death tax requirement because the federal government changed how they treat estates. When the federal government made the change, the states found it difficult to continue their death taxes. Some states are gradually increasing the exemptions every year in order to coincide more with what the federal government has put in place.

Before 2001, states could tax up to 16 percent without residents being dealt an extra burden because the federal tax credit would offset the state estate tax. Basically, it didn’t matter whether a state had a death tax or not because the federal government had their estate tax that could cancel it out. The federal tax came into play on estates over a certain amount. The only dilemma was whether the tax proceeds would go to the state or to the federal government. If a state didn’t have an estate tax, then the federal government would get the money. Nonetheless, the state could impose its own tax. Every dollar an individual had to pay the state would be deducted from what was owed to the IRS.

Now that that system has been done away with, the state death taxes are paid out of the assets of the deceased instead of deducted from what is owed to the federal government. The only tax break related to federal estate taxes is the deduction in the amount of the state estate tax. This can help with federal taxes, but for some it doesn’t save any money at all when the estate falls below the federal threshold. This means that the estate tax is no longer free to states like it was before the change.

It has been said time and time again by some that Minnesota is losing residents because they don’t want to pay certain taxes, such as the death tax. Others argue that this is not true, as there hasn’t been any real data on any exodus from the state due to taxes. It is true that some individuals have publicly said they moved because the taxes were too high, but Minnesota is also deemed a business friendly state, which means there are individuals moving to the state for better life opportunities.

If a large number of individuals have moved because of death taxes and other taxes, it is said that this hurts the tax revenue of the state. However, Minnesota just logged another surplus, which counters those claims.

Until there is an official study on whether or not an influentially high number of people are leaving Minnesota for high tax reasons, it is not known. However, Minnesota was declared in 2013 as the worst state for dying because of a 10 percent gift tax (on gifts within three years of death) with an exemption of $1 million. The tax comes in addition to the 16 percent estate tax.