NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A1522
SPONSOR: Braunstein (MS) TITLE OF BILL: An act to amend the tax law, in relation to the rate
of the estate tax
PURPOSE OR GENERAL IDEA OF BILL:
This bill will remove the estate tax "cliff" enacted by Chapter 59 of
the Laws of 2014. As enacted, this chapter requires estates that exceed
the exclusion amount by over five percent (5%) to lose any exemption
from taxes. The result is that estates with a value over one hundred and
five percent (105%) of the current exclusion amount are taxed on their
full value, not just the value in excess of the exclusion amount.
Estates that exceed the exclusion amount by five percent (5%) or less
are subject to a complex calculation to determine the amount of estate
tax due. Such a tax is patently unfair as it results in a marginal tax
rate in excess of one hundred percent (100%). This new bill will remedy
this unfairness by limiting taxation to the portion of the taxable
estate that exceeds the exclusion amount.
SUMMARY OF SPECIFIC PROVISIONS: 1. Section 1.Subsection (b) of
section 952 of the tax law, as amended by section 2 of part X of chapter
59 of the laws of 2014, is amended to state that the current method of
calculating the estate tax shall only apply to decedents dying on or
after April 1, 2014 and before April 1, 2015.
2. Section 2. Paragraph 1 of subsection (c) of section 952 of the tax
law, as added by section 2 of part X of chapter 59 of the laws of 2014,
is amended by removing the language that created the estate tax "cliff "
JUSTIFICATION:
By enacting Chapter 59 of the Laws of 2014 New York State more than
doubled its estate tax exemption from $1,000,000 to $2,062,500. New York
State's exemption amount is scheduled to gradually increase through
2019, at which time it will once again match the federal exemption
amount. However, this increase in New York's estate exclusion amount
came with a large problem, called the "cliff." Over time, the basic
exclusion amount is increased as follows:
Death on or After And Before Exclusion Amount
April 1, 2014 April 1, 2015 $2062,500
April 1, 2016 April 1, 2016 $3,125,000
April 1, 2017 April 1, 2017 $4,187,500
April 1, 2017 January 1, 2019 $5,250,000
Along with the increased exclusion amount, Chapter 59 of the Laws of
2014 also contains legislation that increases the amount of the estate
that is subject to taxation. Under this new legislation, if a New York
decedent's taxable estate is from one to five percent (5%) greater than
the basic exclusion amount, the applicable credit amount is limited
based upon a formula, resulting in a rapidly increasing tax for each
percentage point over the basic exclusion amount.
When the taxable estate exceeds five percent (5%) of the exclusion
amount, the estate "falls off the cliff," and the entire value of the
estate (not just the portion in excess of the exclusion amount), is
subject to taxation. Simply put, the current law provides an extremely
steep slope that phases out the applicable credit amount for New York
taxable estates that are between one hundred and one hundred and five
percent of the basic exclusion amount, and eliminates the basic exclu-
sion amount altogether for the estate of any decedent whose New York
taxable estate exceeds one hundred and five percent of the basic exclu-
sion amount. The unfairness of this legislation will only increase as
the exclusion amount increases over the next few years, as shown in the
following example.
For example, under the current law, assuming a basic exclusion amount of
$ 5,250,000, a decedent with a New York taxable estate of $5,512,500
(which is 105% of the basic exclusion amount of $5,250,000) would pay a
New York estate tax of $ 430,050 as a result of the "Cliff." In effect,
there is a New York estate tax of $430,050 (or a marginal New York
estate tax rate of nearly 164%) on the additional New York taxable
estate of $262,500 in excess of the basic exclusion amount of
$5,250,000. This result is patently unfair. Other states that have
adopted the "cliff method" of collecting estate taxes have reversed
their legislation. Connecticut (2010) and Rhode Island (2015) have since
eliminated the "cliff in their estate taxes.
PRIOR LEGISLATIVE HISTORY:
2015-2016: A.6419 - Referred to Ways and Means.
FISCAL IMPLICATIONS:
To be determined.
EFFECTIVE DATE:
This act shall take effect immediately.
