OLYMPIA — The House approved a change in the estate tax to address a loss in court that could cost the state more than $40 million in the coming weeks.
On a 53-33 vote, it approved a deal negotiated with Senate Republicans that could keep refund checks being sent tomorrow to families that challenged one aspect of the estate tax that was enacted in 2005. It provides some new deductions for family owned businesses that have high property assets but relatively small cash reserves. . .
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… The state faces some $40 million in refunds to about 70 familes who are caught in a glitch in state law involving certain trusts that protect a married couple's assets when the first spouse dies. Under these trusts, the estate tax isn't levied until the second spouse dies and other heirs inherit the assets. The state Supreme Court ruled the law was not properly written to apply the tax after the second spouse died.,
Rep. Reuven Carlyle, D-Seattle, said the problem was a legal glitch that, if allowed to stand, would mean only single people pay the estate tax. “The intent of the was absolutely crystal clear that there should be an estate tax on single people and married couples.”
But Rep. Maureen Walsh, R-Walla Walla, said the bill goes to far by applying the tax retroactively after the court case proved the state made a mistake. The refunds belong to families covered by the court decision, she said, and the state should “refund these families and be done with it and step away.”
Rep. Matt Shea, R-Spokane, predicted the state will be sued again over the retroactivity of the bill and “we're going to lose.”
Carlyle agreed that the state will probably be sued, but lawyers have told him there's a higher probability of winning than losing. The state has applied some tax laws retroactively in the past after court rulings and won, he said.
The bill now goes to the Senate, which would have to pass it and get it to Gov. Jay Inslee for a signature before 8 a.m. Friday.
Rep. Gary Alexander, R-Olympia, said he was concerned about the retroactivity but supporting the bill because the deal struck over a new deduction for family business assets could represent progress toward a future agreement on the overall operating budget. “We're going to have to reach some amount of give and take to reach a budget.”