Family Farms Exempted from PA Inheritance Tax
The Governor's Press Release was posted by PR Newswire under the title Pennsylvania Governor Tom Corbett Ends Burden for Farmers by Eliminating Inheritance Tax (07/01/12):
Pennsylvania farmers can now pass their farms on to their heirs without worrying they will have to pay steep "death taxes" to keep them in the family.
"The death tax has forced too many families to sell their legacy, their land and their way of life," said Governor Corbett. "This tax has put too many farms out of business because it was too expensive for farmers to pass them down to their children. This will happen no more. We intend to save our farms."
Previously when a landowner died, heirs to their farm property had to pay an inheritance tax of 4.5 percent if they were adult children and 12 percent if they were siblings of the deceased.
"The inheritance tax has been a burden on farm families for decades," said Agriculture Secretary George Greig. "By eliminating this tax, Governor Corbett solidified his commitment to Pennsylvania farm families, and to keeping farmers farming for generations. This law provides farmers the opportunity to save thousands of dollars in inheritance tax, allowing them to reinvest in their agricultural operations." * * *
There was some confusion whether the bill was signed into law on June 30th, when first announced, or later as a part of the budget bill signed by the Governor on July 2nd. A Press Release by the Governor's Office issued on July 3, 2012, confirms that the relevant bill was signed on July 2nd. However, the provisions related to this new exemption "shall apply to the
estates of decedents dying after June 30, 2012."
The tax relief originally was introduced in the House as House Bill 1864, PN 2401, by Representative Stephen Bloom, of Cumberland County, PA, as sponsored by many other representatives. That bill provided, simply:
Section 2111. Transfers Not Subject to Tax.‑‑* * *(s) A transfer of an agricultural commodity, agricultural conservation easement, agricultural reserve, agricultural use property or a forest reserve, as those terms are defined in section 2122(a), to lineal descendants or siblings is exempt from inheritance tax.
The objectives of HB 1864 were supported by the Pennsylvania Farm Bureau, which provided testimony on October 17, 2011 to the PA House Finance Committee in support of Inheritance Tax reduction or elimination, including the proposed exemptions provided in HB 1864. See: Testimony (PDF, 6 pages).
That Bill's objectives became incorporated into the omnibus budget bill, HB 761, PN 3894.
This lineage was described by the House Republican Caucus in a posted article, Inheritance Tax Relief Measure Heads to Governor’s Desk (06/30/12):
A measure to end the financial burden of Pennsylvania’s inheritance tax on surviving farm family members has become part of the 2012-13 state budget package, which was sent to the governor tonight, said Rep. Stephen Bloom (R-Cumberland).
Bloom’s original bill, House Bill 1864, would exempt transfers of agricultural assets from the Pennsylvania inheritance tax when the receiving heir is a sibling or child of the deceased farmer. The exemption was incorporated into the omnibus Pennsylvania Tax Code bill (House Bill 761) by the Senate this week and passed finally by the House today.
“This measure will prevent the state from continuing to penalize farm families in Pennsylvania during a time when they are most economically vulnerable,” said Bloom. “By eliminating the death tax on transfers of ag assets, we can help farm families keep farming successfully in future generations.”
In addition, Bloom’s initiative would extend the new inheritance tax exemption to farm commodities, such as livestock and crops. It would also exempt from the death tax forest reserves that are passed along from a parent to a child or the parent’s brother or sister.
“This measure is a huge win for Pennsylvania farm families,” said Bloom. “Too many family farms have been divided up and sold when a loved one dies, because surviving family members are unable to pay the burdensome inheritance tax on their farm property.”
The House originally approved Bloom’s measure in December, on a 190-1 bipartisan vote. Companion legislation introduced by Sen. Dominic Pileggi (R-Chester/Delaware) was also amended into the Pennsylvania Tax Code, which was sent to the governor as part of the 2012-13 budget package tonight. * * *
Section 23 of HB 761, PN 3894, which became Act No. 85 of 2012, effective as of June 30, 2012, now provides, in part:
Section 2111 of the act is amended by adding subsections to read:
Section 2111. Transfers Not Subject to Tax.‑‑* * *(s) A transfer of real estate devoted to the business of agriculture between members of the same family, provided that after the transfer the real estate continues to be devoted to the business of agriculture for a period of seven years beyond the transferor's date of death and the real estate derives a yearly gross income of at least two thousand dollars ($2,000), provided that:(1) Any tract of land under this article which is no longer devoted to the business of agriculture within seven years beyond the transferor's date of death shall be subject to inheritance tax due the Commonwealth under section 2107, in the amount that would have been paid or payable on the basis of valuation authorized under section 2121 for nonexempt transfers of property, plus interest thereon accruing as of the transferor's date of death, at the rate established in section 2143.(2) Any tax imposed under section 2107 shall be a lien in favor of the Commonwealth upon the property no longer being devoted to agricultural use, collectible in the manner provided for by law for the collection of delinquent real estate taxes, as well as the personal obligation of the owner of the property at the time of the change of use.(3) Every owner of real estate exempt under this subsection shall certify to the department on an annual basis that the land qualifies for this exemption and shall notify the department within thirty days of any transaction or occurrence causing the real estate to fail to qualify for the exemption. Each year the department shall inform all owners of their obligation to provide an annual certification under this subclause. This certification and notification shall be completed in the form and manner as provided by the department.(s.1) A transfer of an agricultural commodity, agricultural conservation easement, agricultural reserve, agricultural use property or a forest reserve, as those terms are defined in section 2122(a), to lineal descendants or siblings is exempt from inheritance tax. [Emphasis added.]
Act 85 includes some new definitions relevant to the exemptions:
Section 2102. Definitions.‑‑The following words, terms and phrases, when used in this article, shall have the meanings ascribed to them in this section, except where the context clearly indicates a different meaning:* * *"Business of agriculture." The term shall include the leasing to members of the same family or the leasing to a corporation or association owned by members of the same family of property which is directly and principally used for agricultural purposes. The business of agriculture shall not be deemed to include:(1) recreational activities such as, but not limited to, hunting, fishing, camping, skiing, show competition or racing;(2) the raising, breeding or training of game animals or game birds, fish, cats, dogs or pets or animals intended for use in sporting or recreational activities;(3) fur farming;(4) stockyard and slaughterhouse operations; or(5) manufacturing or processing operations of any kind.* * *"Members of the same family." Any individual, such individual's brothers and sisters, the brothers and sisters of such individual's parents and grandparents, the ancestors and lineal descendents of any of the foregoing, a spouse of any of the foregoing and the estate of any of the foregoing. Individuals related by the half blood or legal adoption shall be treated as if they were related by the whole blood.
The effective date of the act is stated as follows in Section 30 (7) of the Act: "The amendment or
addition of sections 2102 and 2111(s) and (s.1) of the act shall apply to the
estates of decedents dying after June 30, 2012."
