April City Council Message
By: Mark Combs, Contact this Councilmember
Return to City Council Listing
ON DEATH AND TAXES
You may have seen articles recently about a proposal in the General Assembly to eliminate the Ohio Estate Tax. While I generally welcome tax relief, I would be remiss if I neglected to mention the consequences. Most Ohio residents are not aware that the Ohio Estate Tax has been a significant revenue source for municipalities, particularly the more affluent communities, for nearly 40 years. Although there have already been major changes to the Ohio Estate Tax since 2001, its elimination would not go unnoticed by municipalities. So, what is it and how will it affect us here in Montgomery? I offer three comments to put this in perspective.
First, the Ohio Estate Tax is levied against the value of a decedent’s estate. Unlike an inheritance tax which is paid by beneficiaries of an estate, the estate tax is paid from the assets of the decedent’s estate. It is an unpleasant topic for discussion since it only comes upon the death of one of our friends or neighbors. Until 2001, the State of Ohio shared the Ohio Estate Tax revenue so that 36% went to the State and 64% was returned to the municipality where the decedent lived. In 2002, the State’s share was reduced to 20%, resulting in 80% going to the municipality. Although the percentage share going to local government increased, the general assembly also made substantial tax cuts. This was good news for taxpayers, but it created financial hardships for some municipalities who were accustomed to that revenue stream.
Second, for most municipalities, formulating its annual budget is challenging enough, but estate tax revenues are exceedingly difficult to predict from year to year. In addition to the obvious reason stated above, Ohio Estate Tax reform made it more unpredictable than before. The following chart reveals just how random the estate tax revenue actually is for the City of Montgomery.
| Year | Revenue |
|---|---|
| 2000 | $616,831 |
| 2001 | $1,213,351 |
| 2002 | $270,154 |
| 2003 | $1,268,743 |
| 2004 | $608,288 |
| 2005 | $339,302 |
| 2006 | $222,831 |
For decedent’s estates with a date of death before January 1, 2001, the estate tax credit was $500, so that estates more than $40,000 paid taxes. The estate tax credit was increased to $6,600 in 2001 and then raised to $13,900 in 2002. In essence, decedent’s estates less than $338,333 pay no estate tax. There were modifications to the marital deduction as well as tax relief for farms and family owned businesses. Since the actual payment of the estate tax occurs about nine months after the date of death, it takes time to evaluate the impact on revenue.
Third, the City’s finance department, legal counsel, and members of council have been monitoring these tax changes and have anticipated that the day would come when the Ohio Estate Tax would cease to be a revenue source. For budget planning purposes in 2008 and beyond, we project no estate tax revenue. This conservative budget planning has served our City well in the past, and until we receive other direction from the legislature, we intend to apply those same principles to keep the City fiscally sound in the future.
If you would like more information on the Ohio Estate Tax, I invite you to the website of the Ohio Department of Taxation at http://tax.ohio.gov/divisions/estate/index.stm