2013 | The Year Ohio’s Estate Tax Disappears

Just recently, Ohio’ Legislatures passed HB 153 that repeals Ohio’s estate tax in 2013. This changes the current story of estate tax across the United States as we see in the next few maps. Many people choose to retire out-of-state in order to escape the estate tax in Ohio. In 2013, the number of retirees may increase in Ohio, as the state may become a favorable location in terms of taxes (also taking into consideration the other taxes we’ve discussed in the previous tax blogs). First of all, what is an estate tax (commonly referred to as the “death tax”) and how is it different from the inheritance tax? An estate tax is a tax placed on an estate as a whole when that estate is being passed on to others. However, an inheritance tax is placed on each individual that inherits a part of an estate. Many states with such taxes allow spouses and children to be exempt from either tax, but other states may impose the tax at a much lower rate.
Which states have this controversial “death tax”? The first map (figure one) shows that most states with such a tax are to the East, with Ohio amongst those states. However if you look at Ohio’s neighboring states, three of the five have an inheritance tax with the remaining two having no tax at all. This will change in 2013, as HB 153 was recently passed by Ohio Legislatures, eliminating the estate tax for 2013 and thereafter. With this soon-to-come change, as researchers and geographers we ask ourselves how that will have an impact on the neighboring states. With Ohio being an isolated estate tax state, the neighboring states of Indiana, Kentucky and Pennsylvania may follow and perhaps make changes to their own inheritance tax law. But given the current tax in Ohio, what does this say about Ohio’s wealth? Does this show that Ohio’s residents have such wealth that it must be taxed to bring income into the state? Of course California and Florida residents have a higher average income that Ohio, yet those two states have no estate or inheritance tax. Does this tax have ties to historical events? If Ohio might not be such a favorable place to retire this year or next year, then consider Maryland and New Jersey. These two states have an estate tax and an inheritance tax.

The second map (figure two) shows the exemptions to the estate tax. The estate must be valued at more than the minimum amount according to each state before the estate tax applies to that estate as a whole. In Ohio, an estate must be valued at least $340,000 before the estate tax is applied. Thus this lower exemption places Ohio as an unfavorable location when comparing the exemption amounts of other states with an estate tax. In North Carolina, the exemption is $5 million (the highest in the U.S.) which may place it amongst the most affordable places to retire. As for Maryland and New Jersey, they have lower exemption amounts with $1 million for Maryland and $680,000 for New Jersey (keeping in mind that estate tax and inheritance tax applies to this amount).

The third map (figure three) shows the rate that can be applied to these lowest estate values that can still be taxed. Taking a look at Ohio again, the rate is 6.00% of the estate valued at least $340,000. North Carolina, as we saw with a $5 million exemption, taxes the estate at a rate of 0.80% ($40,000). The states with the highest rates are Oregon (10.00%) and Washington (14.00%).

With those rates and exemptions in mind, how about the estates that are valued much more? The fourth map (figure four) shows what the lowest estate values can be while being taxed at the highest rate in each state. In Ohio, that estate value is at least $500,000, but when looking at the other states, the highest rates apply to estates valued at around $10 million. By looking at this map alone, one might think that with a higher estate value, Ohio may be a more favorable state to retire to when compared to nearby states like Illinois, North Carolina, Maryland or New Jersey.

These high valued estates of course are taxed at the highest allowed tax rate. The final map (figure five) shows the highest tax rate that can be applied to an estate in each state. Ohio has the lowest rate at 7.00%. We’ve mentioned that North Carolina may be a favorable location if an estate value is low enough to be taxed, but when it comes to high valued estates, North Carolina taxes those estates at a relatively high 16.00%. Let’s take a $20 million estate for example. In Ohio, at 7.00%, that entire estate would owe $1,400,000; in North Carolina, at 16.00%, an estate also worth $20 million would owe $3,200,000.

The states in blue are those that have an inheritance tax. Even though Indiana may not have an estate tax like Ohio, they have the highest inheritance tax rate in the U.S. So when it comes to estate taxes, perhaps the best solution would be to just retire to any of the 27 other states that have no estate or inheritance tax. To name a few popular states: California, Nevada, Texas and Florida. But if you must retire to one of the 23 states with an estate or inheritance tax, then first look at how much that estate is worth, and compare it across the U.S. to see how much tax would be paid in each of those states. In Ohio, higher-valued estates have it easy but the lower-valued estates pay quite a bit to the state.

Below are just some example calculations of taxes on estates across the U.S.
Estate “A” Value: $30,000,000
Tax Paid to States:
Ohio: $2,100,000 (at 7.00%)
Illinois: $4,800,000 (at 16.00%)
New York: $4,800,000 (at 16.00%)
Washington: $5,700,000 (at 19.00%)
Maryland: $4,800,000 (of the entire estate at 16.00%) plus additional 10.00% on each individual that receives part of estate
New Jersey: $4,800,000 (of the entire estate at 16.00%) plus additional 16.00% on each individual that receives part of estate

Estate “B” Value: $2,500,000
Tax Paid to States:
Ohio: $150,000 (at 6.00%)
Illinois: $20,000 (at 0.80%)
New York: $127,250 (at 5.09%)
Washington: $350,000 (at 14.00%)