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Wash. House passes estate tax fix

Rachel La Corte, Associated Press

OLYMPIA, Wash. (AP) -- The Washington state House on Thursday approved a legislative fix to a court ruling on the estate tax, a move meant to prevent issuing millions of dollars in refunds that were set to start going out Friday morning.

The House passed the measure on a 53-33 vote and sent it over to the Senate, which could take action on it later in the day. House leaders say the language of the bill has been agreed to by the Senate. However, Senate Majority Leader Rodney Tom said Thursday evening negotiators were still working on a final agreement that would get the bill to the governor.

Officials with the state Department of Revenue have said the state could have to pay out $160 million over the next two years if the fix isn't made to the law. The figure includes money lost through refunds and a decline in future collections.

Lawmakers are trying to reach a deal in time to prevent the first $13 million the state agency says it must send to 10 estates before a 9 a.m. court hearing on Friday unless a measure is passed and signed into law. Additional checks are being processed to be sent out in coming weeks.

Some lawmakers want a legislative workaround to last year's ruling by the state Supreme Court, which determined the estate tax did not apply to married couples who had used a certain type of trust in their estate planning.

The Department of Revenue says it has already received 70 refund requests totaling more than $40 million from estates that had paid the taxes before the court ruling. Others have gone to court to seek refunds. The bill passed Thursday closes the marital trust exemption, while also increasing the tax rate on the largest estates. It also creates a deduction up to $2.5 million for family-owned businesses where the estate's interest in the business is valued at $6 million or less.

"I think we can all accept that we had to move forward with a responsible, thoughtful resolution to this particular court case," said Rep. Reuven Carlyle, D-Seattle. "That's what this legislation accomplishes."

Republicans expressed concern about the retroactivity of the law, saying it was unfair.

"The reality is this money belongs to those families because it was not lawfully taken from them in the first place," said Rep. Maureen Walsh, R-Walla Walla. "We're going against a decision made by the Supreme Court to refund these families."

Mike Gowrylow, a spokesman for the Department of Revenue, said that in order to prevent the first of the refunds from being sent out, action must be taken before a 9 a.m. Friday court hearing involving an estate seeking a refund.

Prior judges have ordered the Department of Revenue to make refunds. In two of the cases, the court has sanctioned the department for opposing the refund requests and ordered it to pay attorney fees to plaintiffs. Gowrylow said that they have to be able to tell the judge Friday either that the law had been changed or that the checks were already in the mail.

An agreement on the estate tax measure could indicate the first agreement between the House and Senate, which have been locked in budget negotiations for weeks. Democrats control the House and a mostly-Republican coalition, led by Tom, a Democrat, controls the Senate. Lawmakers started a second, potentially 30-day special session on Wednesday after adjourning their first special session on Tuesday without a deal on the state operating budget.

The Senate majority has been seeking movement on a handful of policy bills, and during passage of its budget last week, lawmakers said on the Senate floor that revenue-related bills, including the estate tax, would not pass without some of those bills, including one dealing with workers' compensation settlements.

Lawmakers face a $1.2 billion budget shortfall for the two-year cycle that ends in the middle of 2015 — an amount that doesn't include money lawmakers are seeking for education in response to a Supreme Court ruling that the state isn't fulfilling its constitutional obligations.


Associated Press writer Mike Baker contributed to this report. Follow Rachel La Corte at http://www.twitter.com/RachelAPOly or http://www.facebook.com/news.rachel