Estate tax changes spur Dayton court challenge

If you make enough money before you die, the state will take some of it before your estate can pass it along to your heirs.

Up until now, your estate would have to be worth more than $1.8 million before the Minnesota estate tax kicked in, but that changed during this year's legislative session.

The tax bill passed by the Republican-controlled Legislature and reluctantly signed by DFL Gov. Mark Dayton increases the taxable estate value from $1.8 million to $3 million over the next three years. The top tax rate remains at 16 percent.

Minnesota is among 14 states that impose their own estate tax. Farms and family-owned businesses worth up to $5 million are already exempt.

Rep. Greg Davids, R-Preston, chair of the House Taxes Committee, describes the estate tax as "not very Minnesota nice." People who already pay taxes on their wealth should not be hit again when they die, he added. "I want to work every day to try and raise those numbers so more families can keep more of what their mothers and fathers and grandfathers and grandmothers have earned."

Dayton and his administration are concerned about the fiscal impact of the tax change on the state budget.

"About a thousand estates in Minnesota pay the tax right now. Once this $3 million, the new amount is phased in staring in 2020, it's estimated 250 estates will be paying the tax after that," said Minnesota Department of Revenue Commissioner Cynthia Bauerly.

Fewer estates mean less revenue. Bauerly's agency estimates the state will collect about $35 million less over the next two years. That will jump to nearly $75 million in the following two years.

Dayton says the adjustment is too expensive and benefits "only a handful of the richest people in Minnesota."

He listed the estate tax as one of his reasons for vetoing funding for the House and Senate, with the hope of luring Republican leaders back to the bargaining table. A Ramsey County judge last week ruled the veto unconstitutional, but Dayton is appealing to the Minnesota Supreme Court.

He believes that getting his line-item vetoes upheld is the path to getting a special session agreement with GOP leaders to undo parts of the tax bill, including the estate tax provision.

Dayton points to recent economic reports that show state tax revenues have already fallen below projections.

"It underscores my concern for the bill that was passed," he said. "I hope that we can renegotiate that bill, either now or in the next legislative session, and put Minnesota on a more secure long-term fiscal path."

Davids, however, said he has no intention of revisiting the change that the governor already enacted.

"It was a great bill, very bipartisan, Davids said. "He signed the bill. Let's move on and start working on a tax bill for 2018."