Tax Type
Estate Tax
Description
Double Taxation, Estate Tax
Topic
Basis of Tax
Estates and Trusts
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
04-02-2002
April 2, 2002
RE: § 58.1-1821 Application: Estate Tax
Dear *****:
This will reply to your letter in which you request a refund of Virginia estate tax remitted with an estate tax return on behalf of ***** (the "Decedent") and the ***** (the "Taxpayer"). I apologize for the delay in the department's response.
FACTS
In September of 2000, the Decedent's child died leaving his estate to the Decedent. His estate timely filed estate tax returns and paid all applicable federal and Virginia estate taxes. In October of 2000, the Decedent died. Because the Decedent inherited her son's estate, her assets were sufficient to create a taxable estate. The federal credit for estate taxes paid on prior transfers eliminated federal estate tax liability. However, the Taxpayer's Virginia estate tax return reflected a liability.
You contend that Virginia's imposition of an estate tax on the Taxpayer is inequitable when there is no federal estate tax liability. Also, you assert that because Virginia estate tax had been paid on the assets of the Decedent's son one month earlier, the estate tax imposed on the Taxpayer amounts to
double taxation.
DETERMINATION
Under present law, a gift tax is imposed on lifetime transfers and an estate tax on transfers at death. The estate and gift tax are unified so that a single graduated rate applies to cumulative taxable transfers made by a taxpayer during his or her lifetime and at death. A unified credit is available for property transfers by gift and at death. The unified credit effectively exempts from tax transfers of estates that fall below a certain value.
The imposition of the Virginia estate tax when federal estate tax liability has been absorbed by the federal credit for prior transfers was addressed in Public Document ("P.D.") 88-71 (5/2/88). Under Code of Virginia § 58.1-902, a Virginia estate tax is imposed that is equal to the maximum amount of the credit allowed by Internal Revenue Code ("IRC") § 2011 for state death taxes. Internal Revenue Code § 2011 allows a credit against the federal estate tax for any estate, inheritance, legacy, or succession taxes actually paid to any state with respect to any property included in the decedent's gross estate. The maximum amount of the credit allowable for state death taxes is determined under a graduated rate table, based on the size of the decedent's adjusted taxable estate.
Under IRC § 2013, a credit is available for federal estate tax paid on prior transfers to a decedent from a person who dies within 10 years before or two years after the decedent. As such, a decedent which has federal tax liability that is not offset by the federal unified credit may have its federal estate tax liability offset by this transfer credit for the tax on prior transfers.
IRC § 2011(f) limits the credit for state death taxes to an estate's tax liability less the unified credit. No other federal estate tax credits are allowed to offset the credit for state death taxes. Because the Code of Virginia limits the Virginia estate tax to the credit for state death taxes, Virginia estate tax liability may still exist even though the federal estate tax liability was absorbed by other federal estate tax credits.
In the instant case, the death of the Decedent's son increased the Taxpayer's federal estate so that it exceeded the unified credit. However, the Taxpayer was allowed the transfer credit for federal estate taxes paid by the Decedent's son's estate, thereby eliminating any of the Taxpayer's federal estate tax liability. However, because the transfer credit does not effect the state credit, the Virginia estate tax liability remained.
You contend that the intent of the Virginia estate tax is to absorb the federal credit for estate tax death taxes paid, thereby increasing its revenue without creating an additional liability on Virginia estates.
When the 1978 General Assembly introduced legislation that created the Virginia Estate Tax, it added an important proviso to the subcommittee's draft definition of "federal credit" for Virginia purposes: "In no event shall such amount be less than the federal credit allowed by § 2011 of the Internal Revenue Code as it existed on January 1, 1978." Moreover, in 1981 the General Assembly amended the definition of "federal credit" to change the word "allowed" to "allowable." The purpose of this amendment was to assure that the Virginia tax is not dependent on whether or not proper credit is claimed on the federal returns.
These two actions by the General Assembly clearly indicate an intent that the Virginia estate tax could, under certain conditions, be imposed in an amount which may be greater than the amount actually allowed under the IRC or, as in this case, in situations when no federal tax is actually imposed.
Based on the foregoing, your request for refund is denied. A copy of the cited public document is included for reference purposes. This and other reference documents are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/37133B
Rulings of the Tax Commissioner