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Death Tax Reprieve Possible for Pa. Family Businesses

Lawmakers are considering a bill that would exempt business assets from the inheritance tax, a state levy that applies to estates passed down from one family member to another.

 

By Melissa Daniels | PA Independent

HARRISBURG — Mark Sincavage is proud of his family’s business. The excavation and site-development company, Sincavage Corp., has a long history in the Poconos, opening in 1945. The business has been passed down from Sincavage’s father, to his mother, now to him and his siblings.

Sincavage calls their third-generation status “a tremendous milestone.”

These days, though, survival doesn’t come easy for the five-person operation. The economy is tough. Federal regulations are tough. The post-2008 recovery doesn’t seem to be happening, Sincavage says.

“At this point, we’re just trying to survive the economic downtown,” he said from his office in a commercial park in Blakeslee.

There’s some good news out of Harrisburg, at least a ray of hope for the long-term.

Lawmakers are considering a bill that would exempt business assets from the inheritance tax, a state levy that applies to estates passed down from one family member to another.

That’s good news to Sincavage.

“Every little piece that helps to add to the longevity possibility is important,” Sincavage said. “It’s one small step in the right direction.”

He speaks from personal experience.

When Sincavage’s father died in 1989, the family paid an inheritance tax to pass the operation to Sincavage’s mother. The so-called “widow tax” was abolished shortly thereafter. She died in the late 1990s, and Sincavage and his siblings took ownership and again paid an inheritance tax.

Each time, Pennsylvania collected tens of thousands of dollars in taxes on the Sincavage Corp.’s business assets, from real estate to equipment.

And Sincavage Corp. could someday get hit with a third inheritance bill to keep the business in the family — that is, unless the proposed exemption is passed.

State Rep. Steve Bloom, R-Cumberland, sponsored the legislation in the House of Representatives, which has received bipartisan support from 70 co-sponsors. It passed the House Finance Committee on Tuesday, receiving four negative votes from Democrats.

Senate Majority Leader Dominic Pileggi, R-Delaware, introduced similar legislation in the Senate.

Both lawmakers were involved in the passage of an inheritance tax exemption for family farms last year, which passed with bipartisan support.

 

Inheritance tax rates can be anywhere from 4.5 percent to 15 percent, depending on the heir’s relationship to the deceased. The tax applies to assets, including equipment, meaning a business worth $1 million would have a tax bill of tens of thousands of dollars, regardless of its profits.

The idea behind an exemption is that businesses would be able to stay in the family after the owner’s death. Now, businesses are now faced with the reality of selling off assets, reorganization, dipping into savings, or closing down altogether to pay an inheritance tax bill, according to Bloom and other supporters.

Even if a business can find a way to pay the bill, they, like Sincavage and his family, may have to spend more to hire an accountant and tax lawyer.

“Unfortunately, we just paid the bill and that’s painful enough, but actually getting to the nitty gritty of it? We paid professionals to do it because it’s so complex,” he said. “You really have no choice.”

To Bloom, the inheritance tax exemption would allow family owned operations to stay open through an ownership transition – and generate a better economy for the state in the long run.

“We’re allowing the assets to continue to be deployed productively,” Bloom told fellow lawmakers Tuesday, “to generate jobs, to generate income, all of which will be taxed and, over the years, greatly exceed that temporary loss of the one-time revenue hit from the death tax.”

Department of Revenue calculations estimate a loss of $9.9 million in fiscal 2013-14 . Estimates for total inheritance tax collection that year are more than $886 million.

Bloom said he sees the inheritance tax exemption as part of a larger discussion about making Pennsylvania more appealing to business.

“We can’t sustain our economic well-being if we’re continually losing our best and brightest to other states that have a more favorable tax environment,” he said.

Another reform proposal, which passed the House Finance Committee on Tuesday, involves removing the corporate loan tax, which applies to certain types of bonds and debts. That would result in a first-year revenue loss of $14 million.

 

State Rep. Margo Davidson, D-Delaware, voted in favor of the exemption proposal, calling the inheritance tax on small businesses “subversive and burdensome” to families. But she voiced concerns about the piecemeal way that business tax reform seems to be evolving in Pennsylvania, at a time when “school district budgets are being slashed” and the state struggles to take care of vulnerable residents.

“I do believe that we really need to take a look at how we’re doing this tax reform,” she said, suggesting that lawmakers look at a package of tax reform bills simultaneously.

State Rep. Rick Mirabito, D-Lycoming, also supported the inheritance tax exemption. He suggested lawmakers find other places, such as the hotel occupancy tax, to make up the difference.

“We may have to consider some bills that raise other taxes,” Mirabito said.

The Corbett administration has voiced support for making Pennsylvania more business-friendly, and for finding ways to grow jobs, but it’s a matter of budgeting decisions.

Steve Kratz, spokesman for the Department of Community and Economic Development, said that business tax reform is a goal for Gov. Tom Corbett.

In addition to the inheritance tax exemption, and the continued phase-out of the capital, stock and franchise tax, a phase-down of the 9.99 percent corporate net income tax — considered the nation’s highest — is on the radar.

Kratz said a phase-down is something that “the administration is taking a serious look at,” but it will come down to determining what figures won’t “jeopardize our fiscal position.”

As far as the inheritance tax in isolation goes, state Rep. Brad Roae, R-Crawford, said “nobody would even notice” missing revenues from a business exemption.

The Pennsylvania chapter of the National Federation of Independent Businesses supports the legislation. Executive Director Kevin Shivers said the exemption is essentially a jobs bill.

“Your ability to survive from the first generation to the third is virtually non-existent,” he said. “This is legislation that is going to help families keep their businesses up and running.”

Businesses like the one run by Mark Sincavage, who said he’s optimistic because of what he’s hearing about Pennsylvania’s business climate.

Many politicians, Shivers said, claim to support small businesses.

“But this legislation actually does it.”

Contact Melissa Daniels at melissa@paindependent.com

Matt L. January 28, 2013 at 03:27 PM
The death tax was instituted to finance WW1. One of the most unfair taxes in US history.
Carol Ann January 28, 2013 at 09:55 PM
According to a Pennsylvania State Senator I recently heard speak of HB/SB76, taxing property owners to fund public schools dates back to the 1830's. The tax remained below a few hundred dollars a year until the 1980's. Today, in Pennsylvania, the average School Property Tax is $3600./year.

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