Pennsylvania imposes a death tax on assets inherited by children and other non-spouse family members. The inheritance tax rates range from 4.5% to 15%.
Last year, Pennsylvania eliminated the tax on the inheritance of agricultural real estate by family members, provided the property continued to be devoted to agriculture for a period of 7 years. See my earlier article: Pennsylvania eliminates tax on inheritance of family farms if law's conditions are met.
A number of Pennsylvania Republican legislators are seeking to enact a similar law with regard to the inheritance of assets related to a family owned business.
In Pennsylvania, House Bill 48 has been introduced. With a nice marketing touch proponents are calling it “Mom & Pop Shop” Death Tax Elimination. It would eliminate PA Inheritance tax on the transfer of all business assets, including real estate between members of the same family, provided that after the transfer, all assets, including real estate, continue to be devoted to the same business for a period of five years beyond the transferor's date of death.
The term “members of the same family” is defined in Pennsylvania Inheritance Tax law as “Any individual, such individual's brothers and sisters, the brothers and sisters of such individual's parents and grandparents, the ancestors and lineal descendents of any of the foregoing, a spouse of any of the foregoing and the estate of any of the foregoing. Individuals related by the half blood or legal adoption shall be treated as if they were related by the whole blood.”Exactly what will qualify as “business assets” as that term is used in House Bill 48 may need clarification if the legislation is to become law.
House Bill 48 has quite a few Republican sponsors and similar legislation was introduced in the Pennsylvania Senate last year by the powerful Senate Majority Leader, Dominic Pileggi. This would seem to auger well for serious consideration and possible enactment of the legislation later this year. It is estimated that the new family business inheritance tax exemption would cost Pennsylvania approximately $10 million in annual lost tax revenues.
The legislation is getting some press coverage – see: Proposal would exempt family businesses from Pennsylvania inheritance tax.