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S.F. No. 1831 - Unified Estate and Gift Transfer Tax System
 
Author: Senator Ann H. Rest
 
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
 
Date: February 27, 2014



 

This bill establishes a unified transfer tax system in which all Minnesota taxable gifts and all Minnesota gift taxes paid within three years of death are included in the taxable estate. The exemption amount is increased from $1 million under current law to $5 million. The estate tax subtraction of up to $4 million for qualified small business property and qualified farm property is eliminated, as it is no longer necessary given the $5 million general exemption amount. 

Section

Description

1 Transferee liability. Under current law, unpaid estate tax may be collected from the decedent’s personal representatives or heirs if those individuals received property from the decedent’s estate.  This section creates transferee liability for the gift tax that is parallel to the current transferee liability language for the estate tax.
2 Application of chapter. Adds the gift tax chapter (Chapter 292) to the administrative provisions of Chapter 289A.
3 Definitions.  Adds a reference to the definitions in gift tax chapter to the administrative chapter (Chapter 289A).
4 Returns required.  Amends the administrative chapter to authorize the Commissioner to prescribe forms for the estate tax in the same manner as for the gift tax.  Clarifies the meaning of “federal adjusted taxable gifts” with the reference to its meaning in the Internal Revenue Code.  Removes the three-year look back requirement for the estate and gift tax filing threshold.  Requires filing of an estate and gift tax return if the sum of the federal adjusted taxable estate and federal adjusted taxable gifts are made during the year exceeds $5 million.  Requires any individual who makes a Minnesota taxable gift during the taxable year to file a gift tax return.
5 Documents required.  Allows the Commissioner to designate the documents required to be filed with the estate and gift tax returns.
6 Estate tax; filing requirements.  Adds a reference to the gift tax chapter for filing requirements in the administrative chapter.
7 Due date; estate tax returns.  Removes obsolete language from the estate tax filing due date requirement. 
8 Due date; gift tax returns.  Adds the gift tax filing due date requirement to the administrative chapter.
9 Filing extensions; estate tax returns.  Clarifies existing language regarding allowable extensions for filing an estate tax return.
10 Filing extensions; gift tax returns.  Adds the gift tax return extension due date to the administrative chapter.
11 Due date; payment of gift tax.  Adds the gift tax payment due date to the administrative chapter.
12 Extensions; payment of estate tax.  Clarifies existing language regarding extensions for paying tax.
13 Extensions; payment of gift tax.  Authorizes an extension for paying gift tax parallel to that for the estate tax.
14 Assessments on returns.  Authorizes the Commissioner to audit the computation of a filer’s gift tax in addition to the current authority to audit computation of the estate tax. 
15 Limitations; omissions in excess of 25 percent.  Adds a gift tax provision to the current statute of limitations for omissions in estate tax payments.  This is new language necessary for the 2013 gift tax provisions.
16 Federal tax changes; reporting.  Adds the requirement to report adjustments to taxable gifts to the administrative chapter.
17 General right to refund.  Adds gift tax to the general right for taxpayers to claim a refund.
18 Interest on overpayments.  Adds a method of computing interest on overpayment for gift tax refunds parallel to that for estate tax refunds.   This is new language necessary for the 2013 gift tax provisions.
19 Penalty for failure to pay tax.  Extends current law penalties for failure to pay the gift tax.
20 Estate tax; definitions.  Removes language no longer necessary with stand-alone rates.  Clarifies the situs rules to make the same rules effective for both gift and estate tax.  Removes the three-year look back component on gift tax provisions.
21 Minnesota taxable estate.  Provides the new estate tax base necessary for the unified transfer tax system. The estate tax base is the sum of the following: 

Federal taxable estate; state death tax deduction; foreign death tax deduction; aggregate taxable gifts made after June 30, 2013; and gift tax paid during three-year period before death.
22

Estate tax; amount.  Removes language for computing the estate tax under current law. Under the proposal in this bill, the estate tax is computed by applying the schedule of rates and multiplying by the following fraction:

Minnesota gross estate + aggregate Minnesota taxable gifts
Federal gross estate + taxable gifts

This section creates stand-alone tax rates and brackets.  The first $5 million in the Minnesota taxable estate is exempt.

23 Estate tax; QTIP elections.  Allows, for purposes of computing the Minnesota taxable estate, a deduction for the value of qualified terminable interest property (QTIP), regardless of whether the decedent’s estate elects to use the QTIP deduction for federal estate tax. Requires a federal QTIP election when a federal estate tax return is required. 
24 Estate tax; credits.  Subdivision 1 provides a credit in the amount of gift tax paid on gifts included in the Minnesota taxable estate for purposes of computing the estate tax.  This section is an element of the unified estate and gift tax structure.  Subdivision 2 contains language currently in another section of the estate tax chapter into this section.
25 Gift tax; definitions.  Defines Minnesota taxable gifts with situs rules parallel to those for the estate tax.  Creates definitions for "resident" and "nonresident" parallel to those in the existing estate tax law.  Clarifies that gifts to political organizations, contributions to qualified tuition programs, and contributions to qualified education savings accounts are excluded from the definition of taxable gift to the same extent they are excluded under federal law.
26 Gift tax; imposition.  Clarifies the applicable dates for the gift tax. The language stricken in this section is included in section 1 on transferee liability.
27 Gift tax; rates.  Establishes a unified rate structure, making it the same as the estate tax.  The first $5 million in Minnesota taxable gifts is exempt.
28 Gift tax; application of federal rules.  Moves language codified elsewhere in current law to make the gift tax provisions easier to read.
29 Gift tax; QTIP election.  Allows a stand-alone QTIP election for Minnesota gift tax and follows the federal QTIP election when a federal gift tax return is required. 
30 Gift tax; credits.  Subdivision 1 allows a credit for tax paid on Minnesota taxable gifts in a prior return.  This is an element of the unified estate and gift tax structure.  Subdivision 2 creates a nonresident credit for the gift tax that is parallel to that allowed for the estate tax.
31 Appraisal of property; declaration.  Changes a cross reference for purposes of the declaring property subject to the gift tax.
32 “Taxable gift” for certain decedents.  Applies the new definition for taxable gift to the estate tax provisions for calendar year 2013.
33 Repealer.  Repeals the following provisions:
  • Obsolete language regarding the 2010 QTIP election;
  • Nonresident decedent tax credit provision contained under the current law section pertaining to estate tax rates.  This language was moved to a new section of law in the draft;
  • Obsolete provisions pertaining to arbitration of disputes between states over their jurisdiction to impose estate or inheritance taxes on a decedent's estate which have never been used;
  • All language pertaining to the $4 million estate tax subtraction for qualified small business property and qualified farm property;
  • $100,000 lifetime gift tax credit and language pertaining to out-of-state gifts that are obsolete with the current draft; and
  • Various administrative gift tax provisions contained in Chapter 292 that are moved to Chapter 289A in the draft. 

 

 
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