Washington Death Tax Dies

On February 3, 2005, the Supreme Court for the State of Washington in Estate of Hemphill v. State of Washington determined that the state estate tax as currently codified is too ambiguous to create a tax burden on the estate of a decedent who dies after January 1, 2002.

Here are some of key language from the opinion:

We have to decide whether the legislature’s inaction in not revising the
statutory definitional references has changed the character of our estate
tax, which has been a ‘pickup’ tax based on current federal law.  We hold
it has not changed.

The two statutes at issue are RCW 83.100.030, which at subsection (1)
declares a ‘{state estate} tax in an amount equal to the federal credit is
imposed on every transfer of property of a resident,’ and RCW 83.100.020,
which defines a ‘{f}ederal credit’ as based on ‘the United States Internal
Revenue Code of 1986, as amended or renumbered as of January 1, 2001.’  RCW 83.100.020(3), (15).

The Department argues that in following the current definitional language
of the section, the tax scheme imposes an estate tax equal to the federal
credit as of January 1, 2001, prior to the implementation of EGTRRA.
Appellants contend that the operative meaning of RCW 83.100.030 asserts a
legislative intent to maintain a state estate tax scheme that does not
exceed current federal credits. * * *

Until or unless the legislature revises RCW 83.100.030 to specifically
and expressly create a stand alone estate or inheritance tax, RCW
83.100.030 remains as a pick-up tax, in which all state estate tax due must
be fully reimbursed as a current federal credit.  When no credit exists or
where the credit is being phased out, as here, RCW 83.100.030 similarly
calls for a reduction in the state allowed credit.  Otherwise, total ‘tax’
obligations would exceed federal obligations. * * *

The estate tax scheme in Washington as currently written, though not
automatically adopting specific federal law, must be administered
complementary to federal law to guarantee that a separate state tax does
not burden estates.  See Estate of Turner, 106 Wn.2d at 653-54.  A new tax
burden can be created only by law that states such a purpose. Const. art.
VII, sec. 5. 7

By taking no action, the legislature has created an internal conflict
within the statute.  Such a conflict can be resolved only through a clear
directive by the legislature.  The statute cannot be so ambiguous as to
say, ‘{n}o Washington return need be filed if no federal return is
required,’ while also referencing an old federal code that requires
Washington returns when no federal return is filed.  RCW 83.100.050(1).
The same incongruity exists when dealing with state tax burdens that exceed the current federal credit.  RCW 83.100.030.

Ambiguities in taxing statutes are construed ‘most strongly against the
government and in favor of the taxpayer.’  Dep’t of Revenue v. Hoppe, 82
Wn.2d 549, 552, 512 P.2d 1094 (1973).  In this case, the original
initiative creating this tax statute, our prior interpretation of the
statute, and the current wording of the statute show that Washington still
has a ‘pickup’ tax based on current federal law.  Any amount of a state
estate tax not fully absorbed by a current federal credit is an invalid
independent tax.

Special thanks to Prof. John K. Eason of Tulane for calling my attention to this case.