State Estate Tax and the Due Process Clause

Abstract

After two decades of relative dormancy, we are witnessing a resurgence in state estate tax controversies. Federal estate tax amendments beginning in 2001, which eliminated the federal credit for state estate taxes, greatly diminished the general significance of state estate taxes, as most states repealed their preexisting “pickup” or “sponge” taxes designed to absorb the maximum federal estate tax credit.1 Indeed, as of 2020, of the 50 states that had some form of federally based “death tax” in 2001, 32 had no death tax at all and only 18 states had some form of death tax.2 Recently, however, five state courts have addressed the due process clause implications of state estate taxes. Each court considered the question of whether the due process clause permitted the state to impose estate tax on qualified terminable interest property. The U.S. Supreme Court has thus far declined to consider this question, having denied petitions for certiorari from two of the state court decisions that raised it (most recently just two weeks ago3). In 2019, however, the Court did address a related state trust tax issue in Kaestner,4 which informs the QTIP due process analysis.

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