Interstate Competition and State Death Taxes: A Modern Crisis in Historical Perspective
Interstate Competition and State Death Taxes: A Modern Crisis in Historical Perspective
Jef rey A. Cooper 0 1
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1 Jeffrey A. Cooper Interstate Competition and State Death Taxes: A Modern Crisis in Historical Perspective , 33 Pepp. L. Rev. 4 (2006) Available at:
Interstate Competition and State
Death Taxes: A Modern Crisis in
Jeffrey A. Cooper*
II. SETTINGTHE STAGE: 1797-1924
The Early Historyof FederalDeath Taxes
The FirstCentury of State Death Taxes
The Battle over Tax Havens
III. BIRTH OF THE STATE DEATH TAX CREDIT (1924-1926)
The States Prayfor Relief
1. Chronology of the National Tax Association
Delegates Explore the Florida Problem
The Pending Race to the Bottom
A Higher Power: The State Death Tax Credit as a
INITIAL IMPACT OF THE STATE DEATH TAX CREDIT (1926-1935)
FloridaChallenges and Capitulates
The New Landscape
1. The $50,000 Estate
2. The $1,000,000 Estate
3. The $10,000,000 Estate
Principal, Cummings & Lockwood LLC and Visiting Lecturer, Yale Law School. Beginning
August 2006: Associate Professor of Law, Quinnipiac University School of Law. I am indebted to
Anne Alstott for her helpful thoughts and comments, as well as Barbara Bentley and Sarah Page
Grant for their pro bono research assistance. I also appreciate the valuable input provided by my
future colleagues at Quinnipiac, as well as faculty workshop participants at New England School of
Law, Seattle University School of Law, and Stetson University College of Law. My deepest
personal gratitude goes to Alexandra and Ben for so graciously sharing my attention and affection
with this piece.
THE MODERN LANDSCAPE
A Colossal Miscalculation?
Without a Net
What Hath EGTRRA Wrought?
The State ofDeath Taxes
death tax.' From a historical perspective, the new legislation was
unremarkable. After all, Connecticut had imposed various state death taxes
nearly continuously since 1889.2 The editors of the Wall Street Journal,
however, took a different view. In an editorial devoted to the subject, the
Journaldubbed the new tax an "act of masochism" and suggested that state
leaders had better "build a Berlin Wall around the state" if they wished to
prevent wealthy residents from fleeing Connecticut in response.3 The
editorial chastised state leaders elsewhere for imposing similar taxes,
suggesting that these "soak-the-rich schemes" would precipitate "a stampede
of retirees and family businesses" to migrate towards Florida and other states
that impose no such taxes. 4 State death taxes have always been unpopular,5
1. 2005 Conn. Pub. Act 05-251 § 69, availableat
http://www.cga.ct.gov/2005/act/Pa/2005PA00251-R0OHB-06940-PA.htm. The term "death tax" is a generic term that refers to two specific
types of taxes imposed upon the death of an individual, namely "estate taxes" and "inheritance
taxes," the latter also often being referred to as "succession taxes." BLACK'S LAW DICTIONARY 429,
1497-99 (8th ed. 2004). Simply defined, an "estate tax" is a tax imposed upon the decedent's estate
and is generally calculated as a percentage of the decedent's total wealth transmitted at death. Id. at
1497. In contrast, an "inheritance" or "succession tax" is a tax not on the decedent's transmission of
property at death, but rather upon the receipt of that property by his or her heirs or beneficiaries. Id.
at 1497-99. These taxes normally are calculated by reference to the amount to be received by each
beneficiary and the degree of relationship between a given beneficiary and the decedent. To the
extent that most modem estate plans provide for all death taxes to be paid out of estate assets prior to
division and distribution, the distinction between estate taxes and inheritance taxes is relevant only
to the computation of death taxes and not as to the source of payment. See Jonathan G. Blattmachr,
Are You Using the 'Wrong' Tax Apportionment Clause?, PROB. AND PROP., Nov.-Dec. 1989, at 23
(observing that most wills provide for all death taxes to be paid out of the residuary estate without
2. See GAYLE B. WILHELM, CONNECTICUT ESTATES PRACTICE: DEATH TAXES §§ 1: 1-:20 (3d
5. Death taxation often provokes disproportionately emotional reactions. As observed by
For several decades, total revenues raised by estate and gift taxes have roughly equaled
those raised by excise taxes on alcohol and tobacco. Yet,... [w]e do not hear of the
suffering of widows and orphans (or even of farmers and small businesses) because of
alcohol and tobacco taxes. Philosophers and economists do not routinely debate the
but the recent anti-tax rhetoric seems to have reached a new level. State
death taxes, a form of tax revenue nearly two centuries old, are in crisis.
The roots of this crisis span back through the centuries. When Congress
enacted the modem federal estate tax in 1916,6 nearly every U.S. state7
already imposed a state death tax. Only six states did not.8 By 1924, the
number of state governments imposing death taxes had increased to
fortysix, with only three states remaining free of all death taxes. 9 That year, total
state death tax collections were nearly three times what they had been just
eight years before' ° and comprised some seven percent of total state tax
revenues. I At first blush, these figures would suggest that state
governments had tapped the full potential of this form of taxation. A deeper
analysis, however, reveals that they had not.
By 1924, state death taxes had actually entered a period of relative
decline. 12 In large part, interstate competition precipitated this trend. 13
merits of such taxes. Perhaps most significantly, increases in such excise taxes do not
arouse fears that we are about to eliminate the concept of private property in this country
and embrace socialism, or even communism. The estate tax, however, evokes just such
Michael J. Graetz, To Praisethe Estate Tax, Not to Bury It, 93 YALE L.J. 259, 259 (1983) (footnote
omitted). A modem empirical analysis concluded that taxpayers are indeed more likely to relocate
to avoid state death taxes than to avoid, for example, income taxes and property taxes. Jon Bakija &
Joel Slemrod, Do the Rich Fleefrom High Tax States? Evidencefrom FederalEstate Tax Returns
36 (Nat'l Bureau of Econ. Research, Working Paper No. 10645, 2004); see also Lee Anne Fennell,
Death, Taxes, and Cognition, 81 N.C. L. REV. 567 (2003) (exploring the psychology behind the
public opposition to estate taxation).
6. An Act to Increase the Revenue, and for Other Purposes, Pub. L. No. 64-271, § 1, 39 Stat.
756, 756-57 (1916).
7. For convenience, any generic use of the terms "state" and "states" in this Article will
encompass both the duly-admitted states of the United States and the District of Columbia.
During this era, some states actively began to lure wealthy residents with the
promise of favorable tax rates. The State of Florida, in particular,
endeavored to create a domestic "tax haven" free from the evils of winter
snowstorms, income taxation, and death taxation. 14 Florida's efforts to
attract wealthy citizens, as well as similar efforts in Alabama and Nevada, 5
worried politicians elsewhere. In the age of automobiles, taxpayers were
becoming increasingly mobile. 16 If taxation in any state became too
highparticularly a tax as universally loathed as a death tax-a taxpayer could
simply relocate. 7 Many state leaders thus came to worry that imposing
death taxes would precipitate an exodus of their most wealthy, and often
most industrious, taxpayers.' 8 Such an exodus would undermine not only a
state's death tax revenues, but also that state's industry, other tax collections,
and overall fiscal health.
This interstate competition threatened the very existence of state death
taxes-a problem so significant that it inspired three national conferences
bottom" to describe the battle among state governments to attract corporations into the state by
providing the most favorable laws); Daniel R. Fischel, The "Race to the Bottom" Revisited:
Reflections on Recent Developments in Delaware'sCorporationLaw, 76 Nw. U. L. REV. 913 (1982)
("Since founders of corporations have the option of incorporating in any of the fifty states, each state
has strong incentives to enact a statute that will attract new incorporators. This competition in
corporate charters ensures that, as in any other competitive market, only the efficient will survive."
(footnote omitted)). Recently, this model of interstate competition has been applied to the field of
trusts and estates. See, e.g., Robert H. Sitkoff & Max M. Schanzenbach, JurisdictionalCompetition
for Trust Funds: An Empirical Analysis of Perpetuities and Taxes, 115 YALE L.J. 356 (2005)
(examining the "domestic jurisdictional competition for trust funds"); Stewart E. Sterk, Asset
Protection Trusts: Trust Law's Race to the Bottom?, 85 CORNELL L. REv. 1035 (2000) (describing
the role of trust mobility in state competition for trust business).
14. See discussion infra Part III.A.2.
15. Alabama repealed its state death tax before 1892. JAMES A. MAXWELL, THE FISCAL IMPACT
OF FEDERALISM INTHE UNITED STATES 332 (1946). While Nevada still imposed a state death tax in
1924, state leaders were working to position the state as a death tax haven. Id. at 333. In July 1925,
as part of this process, the state followed Florida's lead and passed an amendment to the Nevada
State Constitution prohibiting the imposition of state death taxes. Id.
16. See KEVIN PHILLIPS, WEALTH AND DEMOCRACY: A POLITICAL HISTORY OF THE AMERICAN
RICH 58 (2002) ("More than any other innovation, automobiles dominated the 1920s, relocating
everything from residential patterns to prostitution ...".);see also 67 CONG. REC. 3580, 3597
(1926) (statement of Sen. Fletcher) ("Last year, for instance, 500,000 people went into the State of
Florida in automobiles. They could not have done that five years ago.").
17. Interstate competition to attract wealthy taxpayers and important businesses shaped broad
state tax policies in this era. See E. M. Perkins, The Influence of State Competition in the Adoption
of Regressive Taxes: The North CarolinaSales Tax, 14 N.C. L. REv. 53 (1936) (criticizing state
leaders for turning towards regressive forms of taxation as a means of attracting and retaining
18. Modem empirical analyses have confirmed that taxpayers will seek to relocate in order to
avoid state death taxation, although the impact may be relatively modest. See Bakija & Slemrod,
supra note 5.Notwithstanding the relevance of this cited empirical work, this Article focuses on the
stated opinions of state politicians and the actions they take in response, rather than assessing the
merit of those opinions. Justified or not, state politicians have consistently believed that state death
taxes prompt taxpayer relocations and have acted based on that belief. That dynamic is the focus of
devoted to finding a solution and ultimately prompted congressional action
designed to end the competition.
In 1924, Congress amended the Internal
Revenue Code to allow a taxpayer's federal estate a dollar-for-dollar credit
for all or a portion of the state death taxes paid by that estate. 9 In 1926, in
response to demands from state leaders, Congress increased the maximum
amount of this "state death tax credit" to eighty percent of the federal estate
tax otherwise payable under the 1926 rate tables.2 °
Since the federal estate tax absorbed the impact of state death taxes up
to the limit of the state death tax credit, this credit enabled state governments
to generate significant death tax revenue without imposing any net tax
burden on decedents' estates. 21
wealthy domiciliary of New
With the state death tax credit in place, a
York, for example, would pay the same
aggregate federal and state death taxes as a domiciliary of Florida. The
state death tax credit thus was the great equalizer for the states, enabling
states to impose death taxes without fear of competitive disadvantage. A
taxpayer might still elect to change her state of domicile to avoid winter
snows, but migration south would no longer serve to reduce the bite of death
taxation at journey's end. Congress had neutralized the tax havens.
The tax havens did not go down without a fight, 23 but they eventually
By 1932, Alabama and Florida each adopted a state death tax
exactly equal to the maximum federal credit, 24 a tax known as a "pick-up
tax.,2 5 At that point, every state but Nevada and the District of Columbia
imposed at least a pick-up tax, severely narrowing the gap between the tax
19. Revenue Act of 1924, Pub. L. No. 68-176, § 301(b), 43 Stat. 253, 304. The credit was
limited to the lesser of (i) the state death taxes paid and (ii) twenty-five percent of the federal estate
tax otherwise payable.
20. See Revenue Act of 1926, Pub. L. No. 69-20, § 301(b), 44 Stat. 9, 70.
21. See id. If a state declined to impose a death tax sufficient to fully absorb the available credit,
the federal estate tax would increase commensurately. No net-combined federal and state-death
tax savings would result for taxpayers in that state.
22. As will be explored later, this statement is a bit of an oversimplification. With respect to
several smaller estates, New York and many other states imposed an additional state death tax that
exceeded the state death tax credit. See infra Part IV.C. 1. Nevertheless, for estates of the nation's
wealthier taxpayers-the taxpayers the states were most concerned about retaining-state death tax
rates, in general, matched the available credit exactly. See infra note 214 and accompanying text.
23. Florida unsuccessfully challenged the imposition of the state death tax credit on
Constitutional grounds. See infra Part IV.B (discussing Floridav. Mellon).
24. Oakes, supra note 8, at 469.
25. The term "pick-up" tax refers to the fact that such a tax enabled the state government that
imposed it to pick up the available state death credit offered by the federal government. Such taxes
alternatively are referred to as "soak-up," "sop-up," or "sponge" taxes. Michel G. Kaplan, Will the
DisappearingState Death Tax Credit Deliver a Knock-Out Punch to the Tennessee Inheritance
Tax?, 39 TENN. B.J. 28, 29 (2003).
havens and the rest of the states.26 Throughout the balance of the twentieth
century, this trend towards uniform state death taxes continued. Nevada, the
last hold-out, adopted its pick-up tax in 1987.27 By 2001, a pick-up tax was
the only death tax imposed by thirty-eight states. 28
Then, everything changed.
In the spring of 2001, Congress passed the Economic Growth and Tax
Relief Reconciliation Act of 2001 ("EGTRRA"). 29
piece of tax legislation contained a major surprise for Tsthaitse cgoomveprrnemheennstsiv:3e0
ceased to exist.
EGTRRA repealed the state death tax credit. 3' The elimination took place in
stages over a four year period, from 2001 through 2004.32 As of January 1,
2005, some eighty years after its birth, the state death tax credit simply
26. As noted, the gap was narrowed but not completely eliminated, since many states still
imposed death taxes in addition to the pick-up tax. See supra note 22; infra Part IV.C.
27. See NEV. REV. STAT. § 375A.025 (2003). By waiting until 1987 to adopt a pick-up tax,
Nevada remained stubborn far longer than Florida or Alabama. The state's failure to adopt a pick-up
tax cost it millions of dollars in state revenue.
28. The other thirteen states imposed both a pick-up tax and a separate state death tax.
Federation of Tax Administrators, State Responses to Estate Tax Changes Enacted as Part of the
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (2002),
29. Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107-16, § 1, 115
Stat. 38, 38. President Bush signed EGTRRA into law on June 7, 2001. See id.
30. At least one pair of scholars had warned that Congress might attempt to indirectly increase
federal estate tax revenues by repealing the state death tax credit, a form of tax increase that "could
be accomplished in a manner that would invoke little, if any, public attention." John M. Janiga &
Louis S. Harrison, The Casefor the Retention of the State Death Tax Creditin the FederalTransfer
Tax Scheme: 'JustSay No' to a Deduction, 21 PEPP. L. REV. 695, 715 (1994). As EGTRRA worked
its way through Congress, state governments indeed remained largely silent, and "shot themselves in
the foot by not protesting until too late." MICHAEL J. GRAETZ & IAN SHAPIRO, DEATH BY A
THOUSAND CUTS: THE FIGHT OVER TAXING INHERITED WEALTH 209 (2005). Authors Graetz and
Shapiro contended that the states failed to respond in part due to the difficulty of organizing state
leaders from different political parties to act on a national level. Id. Additionally, Graetz and
Shapiro argued that the states failed to speak up about EGTRRA because of the perceived futility of
state leaders arguing against a federal tax decrease just to save their own tax revenue. Id. at 210
("That argument would not fly.").
31. Economic Growth and Tax Relief Reconciliation Act of 2001 § 531 (a)(1)-(3).
32. Id. During 2001, estates were entitled to the full state death tax credit. I.R.C. § 2011 (a)
(2002). Thereafter, the credit was reduced by 25% per year. See Economic Growth and Tax Relief
Reconciliation Act of 2001 § 531(a)(1)-(3). Accordingly, the credit was reduced to 75% of its
historical amount in 2002, 50% in 2003, and 25% in 2004. Id. As of January 1, 2005, the credit was
replaced with a deduction against the federal estate tax for state death taxes paid. Id. § 532(a)-(b)
(codified as amended at I.R.C. § 2058 (2002)). While this deduction serves to mitigate the effect of
double federal and state death taxation, it does not eliminate double taxation in the way the prior
state death tax credit did. Specifically, a dollar of state death tax which previously generated an
exactly offsetting one dollar credit will now generate a deduction worth forty-six cents (assuming a
top federal estate tax rate of 46% in 2006). Accordingly, that dollar of state death tax actually
reduces the estate by a net of fifty-four cents, whereas under the prior regime it would have had no
net impact on estate assets.
33. EGTRRA contains a "sunset provision" that provides for all changes made by the Act to
disappear on January 1, 2011, thus restoring the state death tax credit. Economic Growth and Tax
Since EGTRRA repealed the state death tax credit, it also repealed the
pick-up state death taxes calculated by reference to that credit. In a process
that has come to be known as "decoupling," some, but not all, of the affected
states responded by imposing independent state death taxes in lieu of their
defunct pick-up taxes.3 4 As of January 1, 2005, twenty-four states imposed
some form of state death tax.35 Florida and twenty-six other states did not.
After eighty years of dormancy, the tax havens thus breathe new life.
Interstate competition begins anew.
How will the competition end? The question is a crucial one. State
leaders, facing the loss of billions of dollars of state tax revenue, certainly
want to know. 36 Taxpayers seeking to plan for the disposition of their
Relief Reconciliation Act of 2001 § 901. See Jeffrey A. Cooper et al., State Estate Taxes After
EGTRRA: A Long Day's Journey Into Night, 17 QUINNIPIAC PROB. L.J. 317, 320 (2004); see also
Ronald Aucutt, Still Debatingthe Prospectsfor Estate Tax Repeal, 28 EST. PLAN. 383 (2001). Most
commentators consider it exceedingly likely that Congress will enact some form of permanent estate
tax legislation before then. See William G. Gale & Samara R. Potter, An Economic Evaluation of
the Economic Growth and Tax Relief ReconciliationAct of 2001, 55 NAT'L TAX J. 133, 138 (2002),
availableat http:/ntj.tax.org/ ("Virtually no one believes the bill will sunset as written.").
34. As a general rule, these state death taxes are designed to replicate the state taxes that would
have been due had EGTRRA not become law and if the state death tax credit had continued in effect.
For example, Rhode Island law provides:
For decedents whose death occurs on or after January 1, 2002, a tax is imposed upon the
transfer of the net estate of every resident or nonresident decedent as a tax upon the right
to transfer. The tax is a sum equal to the maximum credit for state death taxes allowed
by 26 U.S.C. § 2011 as it was in effect as of January 1, 2001. Any scheduled increase in
the unified credit provided in 26 U.S.C. § 2010 in effect on January 1, 2001, or thereafter,
shall not apply.
R.I. GEN. LAWS § 44-22-1.1(a)(2) (Supp. 2005).
35. States imposing state death taxes as of January 1, 2005 were as follows: District of Columbia
(DC CODE §§ 47-3701, 47-3702 (2001)); Illinois (35 ILL. COMP. STAT. § 405/2, 405/3 (1996 &
Supp. 2005)); Indiana (IND. CODE §§ 6-4.1-1-1 to 6-4.1-11-7 (Supp. 2004)); Iowa (IOWA CODE §
451.2 (2004)); Kansas (KAN. STAT. ANN. §§ 79-15,101(a), 79-15,102 (2004)); Kentucky (KY. REV.
STAT. ANN. § 140.010-.990 (2004)); Louisiana (LA. REV. STAT. ANN. §§ 9:2431, 9:2438 (2005));
Maine (ME. REV. STAT. ANN. tit. 36, § 4062 (1990 & Supp. 2004)); Maryland (MD. CODE. ANN.,
TAX-GEN. §§ 7-304, 7-309 (2004)); Massachusetts (MASS. GEN. LAWS ch. 65, §§ 2A(a) (2004));
Minnesota (MINN. STAT. §§ 291.005, 291.03, 289A.10(l) (1999 & Supp. 2005)); Nebraska (NEB.
REV. STAT. §§ 77-2101 to 77-2116 (2003)); New Jersey (N.J. STAT. ANN. § 54:38-1 (West 2002));
New York (N.Y. TAX LAW §§ 951, 952 (McKinney 1999 & Supp. 2005)); North Carolina (N.C.
GEN. STAT. ANN. §§ 105-32.1, 105-32.2 (West 2003)); Ohio (OHIO REV. CODE ANN. §§ 5731.01-.03
(LexisNexis 2003)); Oklahoma (OKLA. STAT. tit. 68, § 2907 (2001)); Oregon (OR. REV. STAT. §
118.010 (2004)); Pennsylvania (20 PA. CONS. STAT. §§ 3701-3705 (2005)); Rhode Island (R.I. GEN.
LAWS § 44-22-1 .l(a)(2) (Supp. 2005)); Tennessee (TENN. CODE ANN. § 30-2-614 (2005)); Vermont
(VT. STAT. ANN. tit. 32, §§ 7101-7475 (2005)); Virginia (VA, CODE ANN. §§ 58.1-901 to 58.1-930
(2005)); and Washington (WASH. REV. CODE § 11.104A.050 (2005)).
36. The repeal of the state death tax credit could potentially cost states $5 billion to $9 billion in
annual revenues. Elizabeth C. McNichol et al., Center on Budget and Policy Priorities, States Can
Retain Their Estate Taxes Even as the Federal Estate Tax is Phased Out, http://www.cbpp.org/ 1-31
02sfp.pdf (last revised Feb. 4, 2003) (estimate of $5.7 billion); see also Elizabeth C. McNichol et al.,
estates struggle to predict the answer, as do the attorneys retained to assist
them. An entire form of state taxation faces a very uncertain future, leaving
state leaders to debate tax policy while taxpayers debate their choice of
The current landscape is not wholly without precedent. Interstate
competition has impacted state death taxes since their inception. The keys to
understanding the challenges confronting modern state death taxes thus may
lie in a study of their history. Yet what little modern literature exists relating
to state death taxation largely has ignored the events preceding EGTRRA 7
This Article attempts to fill that void.
In this analysis, I explore the history of interstate competition to attract
and retain wealthy residents in an effort to help inform the debate as to how
such competition will impact modern state death taxes. Although it is
impossible to anticipate with certainty what state politicians will do in the
future, I seek to offer guidance by placing the current climate in historical
perspective and studying what past political leaders said and did when
confronted with similar considerations.
The following sections of this Article approach this subject in
chronological order. Part II covers the history of federal and state death
taxation from 1797 through 1924, as governments tentatively experimented
with this form of tax revenue. Part III turns to the crucial years of 1924
through 1926, when the states turned to Congress for help and Congress
delivered the state death tax credit. Part IV studies the initial state responses
to enactment of the state death tax credit, as states rapidly moved to
incorporate the new credit into their state tax laws. Part V explores the
longer-term state responses, focusing on two trends in state legislation that
would imperil the future of state death taxes. Part VI brings the analysis to
the modern day, post-EGTRRA, as a long-dormant competition begins anew
between the states that impose death taxes and those that do not.
The conclusion reached from this analysis is a grim one for the future of
state death taxes. The states with decoupled estate taxes now confront the
Center on Budget and Policy Priorities, Repeal of the Federal Estate Tax Would Cost State
Governments Billions in Revenue, http://www.cbpp.org/8-30-00sfp.pdf (last revised Dec. 12, 2000)
(noting that by 2010, repeal could cost state governments nearly $9 billion annually).
37. There exist a number of comprehensive historical analyses of state death taxes that have
become quite dated. See, e.g., MAX WEST, THE INHERITANCE TAX (2d ed., Columbia Univ. Press
1908) (1893); Oakes, supra note 8; MAXWELL, supra note 15, at 331-53. Modem analyses,
including this Author's prior work, largely have ignored this history, focusing instead on the policy
implications of EGTRRA and techniques for estate planning amid the current uncertainty. See, e.g.,
Jeffrey A. Cooper, Wrestling With Decoupling, TR. & EST., Feb. 2006, at 61; Cooper et al., supra
note 33; David Keene & Marcia K. Fujimoto, EGTRRA 's Changes to the State Death Tax Credit:
Good News for Some Estates, Bad News for Some States, 81 TAXES 23 (2003); Bruce D. Steiner,
Coping with the Decoupling of State Estate Taxes After EGTRRA, 30 EST. PLAN. 167 (2003);
Anthony E. Woods, Decoupling's Dilemma: As States Unhook Their Estate Tax Systems From the
Feds, Clients Can Owe More Than Ever Before, TR. & EST., Apr. 2004, at 50.
same competitive pressures that plagued states seeking to impose death taxes
prior to 1924. In the earlier era, Congress provided a bold solution in the
form of the state death tax credit, preventing interstate competition from
destroying the state death taxes. Now, that credit is gone. As such, it may
be only a matter of time before modem state leaders resume where
longforgotten predecessors left off, completing the migration away from death
taxation and towards other forms of tax revenue. A new state tax landscape
will thus emerge, shaped by pressures and influences that began not in 2001
but decades before.
II. SETT[NG THE STAGE: 1797-1924
The history of death taxes in the United States traces back to 1797. Yet
for over a century of this history, death taxes were an exception, both
geographically and temporally, rather than the rule. The early period of
death taxation began slowly, with federal and state governments taking the
first tentative steps into the field.
Towards the end of the nineteenth century, the pace of activity rapidly
increased. What had been a barren landscape turned into a crowded one. By
1924, the federal government and nearly every state imposed some form of
death taxation. At that point, state governments competed not only with the
federal government but also among themselves to exploit what had become a
mainstream source of tax revenue.
The EarlyHistory of FederalDeath Taxes
The federal government enacted and subsequently repealed death taxes
three times during the eighteenth and nineteenth centuries.3 8 While each
iteration of the federal death tax varied widely in form and rate, these early
federal death taxes shared a common origin insofar as each was imposed as
an extraordinary revenue measure during times of military activity, and each
was repealed as soon as the conflict came to an end and the need for extra
revenue abated.3 9
38. See Louis Eisenstein, The Rise and Decline of the Estate Tax, 11 TAX L. REv. 223 (1956)
(detailing the history of federal death taxes); see also STAFF OF JOINT COMM. ON TAXATION, 107TH
CONG., DESCRIPTION AND ANALYSIS OF PRESENT LAW AND PROPOSALS RELATING TO FEDERAL
ESTATE AND GIFT TAXATION 10-18 (Comm. Print 2001) [hereinafter DESCRIPTION AND ANALYSIS]
(providing a legislative history of death taxes from 1797 to 2001).
39. DESCRIPTION AND ANALYSIS, supra note 38, at 10 ("Federal death taxes in the United States,
for most of its history, were imposed primarily to finance wars or the threat of war.").
Congress enacted the first federal death tax in 1797,40 with proceeds
earmarked to pay for a buildup of the U.S. Navy in response to heightened
tension with France. 41 The tax was structured as a "stamp tax," generating
revenue through the sale of documentary stamps required to be affixed to
probate inventories and receipts for transmitted property.42 The rate was
relatively modest, ranging from $0.25 on a legacy of $50 to $100 (a rate of
0.25% to 0.5%) to $1 per $500 of a larger legacy (a rate of 0.2%). 4 3
Congress abolished the tax just five years later, in 1802.44
In 1862, the second enactment of a federal death tax served to defray the
cost of the U.S. Civil War.45 As modified in 1864,46 the tax relied on two
forms of revenue-a stamp tax on probate documents and a "succession tax"
or "legacy tax" imposed on the transmission of real or personal property.47
The stamp tax imposed on probate of wills and letters of administration was
assessed at a rate of $1 for the first $2,000 of estate value plus $0.50 per
$1,000 thereafter, a nominal rate of 0.05%.48 Tax rates for the legacy and
succession taxes were far more meaningful, varying from 1% to 6%
depending on the degree of relationship between the decedent and the
legatee. 49 After making several other modifications, Congress repealed the
succession and legacy taxes in 1870,50 with elimination of the stamp taxes
following in 1872."'
Congress enacted the third federal death tax in 1898 to finance the next
U.S. military endeavor, the Spanish-American War.5 2 This tax was similar
in structure to the prior legacy and succession taxes, yet its 15% top rate
made it far more progressive than any previous federal death tax. 3 In 1902,
the war having ended, Congress repealed the tax.54
In 1916, Congress continued the pattern of imposing death taxes during
wartime" by enacting a new tax just prior to U.S. entry into World War 1.56
While the 1916 federal estate tax shared with its predecessor death taxes a
wartime origin, this version of the estate tax proved to be far more than a
mere ephemeral source of revenue. Long after the peace treaty was signed
in Versailles and the last Americ7an solder returned from the theater of battle,
the federal estate tax remained.1
The tax's longevity cannot be explained by a need for revenue. The
U.S. government ran a sizable surplus between 1920 and 1924. 58 Even the
Secretary of the Treasury, Andrew Mellon,59 argued that the need for federal
estate tax revenue had ended with the end of the war. 60 But the estate tax
found support in those who touted it as an agent of social change, as a force
to counteract the concentration of wealth and excesses of the Gilded Age.61
Ten years earlier, President Theodore Roosevelt had envisioned such a
tax. In a message on December 4, 1906, Roosevelt argued in favor of a
graduated national estate tax. As Roosevelt reasoned,
55. In addition to imposing the three wartime death taxes enacted above, Congress considered
implementing death taxation during the War of 1812 and probably would have done so "if the war
had continued a few weeks longer." WEST, supra note 37, at 88.
56. An Act to Increase the Revenue, and for Other Purposes, Pub. L. No. 6,a-271, § 1, 39 Stat.
756, 756-57 (1916). The U.S. did not formally enter the war until April 6, 1917, later prompting one
member of Congress to challenge the characterization of the estate tax as a war revenue measure. 67
CONG. REC. 3580, 3621 (1926) (statement of Sen. Lenroot) (chiding the Democrats for
characterizing the estate tax as a war measure when they had run for re-election in 1916 claiming
that the party's leadership had kept the country out of war).
57. See supra note 6 and accompanying text.
58. NAT'L TAX ASS'N, PROCEEDINGS OF THE SECOND NATIONAL CONFERENCE ON INHERITANCE
AND ESTATE TAXATION 35 (1925) (statement of Mr. Berry) [hereinafter SECOND CONFERENCE
59. Mellon, one of the wealthiest men in the United States, was not exactly a disinterested
participant in the debate regarding the future of federal estate taxation. See DAVID E. KOSKOFF, THE
MELLONS: THE CHRONICLE OF AMERICA'S RICHEST FAMILY 236 (1978) ("As a man of sixty-nine,
and the most visible of those Americans whose estates might approach $10 million, he might have
thought that the estate and gift tax proposals were directed against him personally.").
60. SECOND CONFERENCE PROCEEDINGS, supranote 58, at 34 (statement of Mr. Berry).
61. See WILLIAM H. GATES, SR. & CHUCK COLLINS, WEALTH AND OUR COMMONWEALTH: WHY
AMERICA SHOULD TAX ACCUMULATED FORTUNES 41 (2002) ("Early in the twentieth century,
Gilded Age corruption and inequality, powerful and popular social movements, and growing moral
misgivings within the wealthy elite all converged on America's political stage. Out of that
convergence came America's first lasting estate tax."); see also Edward J. McCaffery, A New
Understandingof Tax, 103 MICH. L. REV. 807, 834 (2005) (arguing that income taxes and estate
taxes "furthered the progressive cause"); Martin J. McMahon, Jr., The Matthew Effect and Federal
Taxation, 45 B.C. L. REV. 993, 1050-51 (2004) ("The purpose of the estate tax is not primarily to
raise revenue. It is 'antidynastic.' The purpose of the estate tax is to reduce wealth inequality."
The man of great wealth owes a peculiar obligation to the State,
because he derives special advantages from the mere existence of
government. Not only should he recognize this obligation in the
way he leads his daily life and in the way he earns and spends his
money, but it should also be recognized by the way in which he
pays for the protection the State gives him.62
Roosevelt was not the only voice in favor of using federal death taxation
as a social policy tool. The great philanthropist, Andrew Carnegie, also
frequently advocated death taxation. 63 As Carnegie argued,
Of all forms of taxation[, death taxation] seems the wisest.
who continue hoarding great sums all their lives, the proper use of
which for public ends would work good to the community from
which it chiefly came, should be made to feel that the community,
in the form of the State, cannot thus be deprived of its proper
The 1916 estate tax thus served a major purpose not in terms of the
revenue it raised, but rather in its very existence. Congress wanted an estate
tax to serve social purposes, not simply to provide revenue for a specific
governmental need. This feature differentiated the 1916 estate tax from its
predecessor taxes and would prove a crucial factor explaining the tax's
longevity.65 This defining characteristic also helps explain Congress's later
willingness to give up a significant portion of the resulting tax revenue by
implementing the state death tax credit.66
62. WEST, supra note 37, at 10.
63. Carnegie was so often quoted as an advocate for progressive death taxation that Albert
Atwood, a staff writer for The SaturdayEvening Post,posed the following rhetorical question to the
delegates to the Preliminary Conference on Inheritance and Estate Taxes: "Did any of you ever read
a speech in Congress, or an article, or a book in fulsome favor of higher death duties, that did not
begin and generally end by quoting Andrew Carnegie in their favor?" NAT'L TAX ASS'N,
INHERITANCE AND ESTATE TAXES, PROCEEDINGS OF PRELIMINARY CONFERENCE AND OF THE SIXTH
SESSION OF THE SEVENTEENTH NATIONAL TAX CONFERENCE 106 (1925) [hereinafter PRELIMINARY
CONFERENCE PROCEEDINGS]. Carnegie remains a popular figure in American history, with a recent
survey conducted by Forbes.com ranking him "as the fourth most influential businessman of all
http://www.forbes.com/business/2005/07/26/camegie-steel-industrycx_0726bizmancarnegie.html (last visited Mar. 15, 2006).
64. Andrew Carnegie, Wealth, N. AM. REV. (1889), reprinted in THE ANDREW CARNEGIE
READER 136 (Joseph Frazier Wall ed., 1992).
65. Although barely recognizable after countless modifications and amendments-some quite
substantial-this 1916 estate tax has remained in place continuously until the present day. See supra
note 6 and accompanying text.
66. See infra Part 111.
The FirstCentury ofState Death Taxes
Nearly every state enacted some form of death taxation between 1826
In 1826, Pennsylvania became the first state to impose a state death tax,
collecting an inheritance tax of 2.5% on estate assets passing to collateral
heirs.68 As initially would be true in many other states adopting state death
taxes, assets passing to a decedent's parents, spouse, or lineal descendants
were exempt from the tax.69
During the period of 1826 through 1891, a relatively small number of
other states followed Pennsylvania's lead and experimented with this form
of taxation. v
However, state death taxes during this era developed little
traction as a form of tax revenue: even states that imposed these taxes
repeatedly tinkered with their governing statutes 71 or simply repealed them. 72
Between 1892 and 1916, the landscape quickly changed. During that
period, thirty-four state legislatures enacted death taxes.73 In addition to an
increase in the sheer number of state death taxes, this era saw significant
changes in the nature of such taxes. States began to adopt more robust and
progressive rate structures, and increasingly were likely to tax assets passing
to lineal as well as collateral heirs.74 State death taxes thus had increased not
only in their prevalence, but also in their fiscal impact.75
C. The Battle over Tax Havens
Despite all the state legislation related to death taxes between 1826 and
1916 and the widespread nature of state death taxes by the end of that
period, these taxes had already entered a period of relative decline.76 In
1915, the year before Congress implemented the modem estate tax, the
states collected $29 million in death taxes.77 By 1924, the figure had risen to
$79 million.78 In gross terms, the increase seems significant. In relative
terms, however, it was not.
During the same 1915 to 1924 period, annual state income tax
collections increased fifty-fold. 79 By 1924, income taxes, gasoline taxes,
and automobile registration and license fees each had surpassed death taxes
as a component of state tax revenues. 80 A near tripling of death tax revenue
thus failed to even remotely keep pace with far more dramatic increases in
other forms of state taxation.
States turned to these other forms of taxation because they feared the
consequences of imposing more onerous state death taxes. Specifically, the
states worried that the imposition of significant death taxes might precipitate
a "mass exodus" of their most wealthy-and often most
productivetaxpayers.82 Individuals who moved out of state in response to death taxes
74. Ohio's 1893 death tax statue was the first to feature progressive rates and the first to tax
lineal descendants. WEST, supra note 37, at 135; see also Oakes, supra note 8, at 457
(characterizing this period as marking "the evolution of what came to be the traditional American
state death duty-a progressive inheritance tax on both direct and collateral heirs").
75. Total state death tax revenues increased from $710,000 in 1886 to approximately $10 million
in 1907 and nearly $31 million by 1916. Oakes, supra note 8, at 459-60; see also LEON GILBERT
SIMON, INHERITANCE TAXATION 24-37 (1925) (summarizing state death tax laws as they existed at
76. See infra notes 80-81 and accompanying text.
77. OVERLAPPING TAXES, supra note 10, at 20 tbl.7.
79. During this period, annual state income tax revenues increased from just $2 million to $101
80. Id. In 1915, death taxes represented 7.9% of total state tax collections. Id. at 21 tbl.7.
Automobile registration and license taxes contributed 4.1% and income taxes contributed just 0.5%.
Id. By 1924, the relevant figures were: 19.9% automobile registration and license taxes, 8.9%
income taxes, 7.0% gasoline taxes, and 6.9% death taxes. Id.
81. As is self-evident from this statement, total state tax revenue increased dramatically during
this time period: from $368 million in 1915 to over $1.13 billion in 1924. Id. at 20 tbl.7; see also 67
CONG. REC. 3580, 3619 (1926) (statement of Sen. Bruce) ("State and municipal taxation is
increasing like a rolling snowball.").
would neither spend their money in their former state of domicile nor pay
taxes to that state.
Such a migration would deprive these states of these
important citizens and their capital.83
The notion that aggressive death taxation would drive wealthy taxpayers
out of state84 was especially problematic for many of the wealthier,
A few rogue states had purposely bucked the early
twentieth century trend towards the imposition of state death taxation.85
Leaders in these states believed that a comparatively favorable tax climate
would attract migrants of wealth and industry.8 6
Florida became the best
known of these domestic "tax havens," as it pursued its belief that a low
overall state tax burden, combined with a complete absence of state death
taxes, was a powerful means of generating a continued influx of wealthy
residents, especially from higher-tax states.8 7 Florida had open tracts of
inexpensive real estate, inviting weather, and an equally comfortable tax
climate. 88 Leaders of that state actively and visibly welcomed wealthy
taxpayers with open arms, rather than with outstretched palms.8 9
By 1924, the list of tax havens appeared poised to grow. Alabama had
repealed its state
83. For an estimate of revenue generated from state death taxes, see supra note 80. In addition to
the loss of death tax revenue, an out-migration of wealthy residents likely would reduce other tax
collections. See Bakija & Slemrod, supranote 5, at 34-35.
84. See supra notes 17-18 and accompanying text; see also Robert W. McGee, Principles of
Taxationfor Emerging Economies: Lessonsfrom the U.S. Experience, 12 DICK. J. INT'L L. 29, 75
(1993) (noting that when taxes are assessed "at the state or local level ... tax competition often
85. See E. M. Perkins, State Action Under the FederalEstate Tax Credit Clause, 13 N.C. L. REV.
271, 271-72 (1934) (listing Alabama, Florida, and Nevada as states that either prohibited or repealed
a state inheritance tax during the early twentieth century). Additionally, Alabama companies boldly
advertised their state as having no inheritance tax. Id. at 271.
86. At first blush, it may seem counterintuitive that a state would seek to attract wealthy residents
but then decline to capture any fruits of that wealth through the imposition of income and death
taxes. The tax havens believed that even without income and death taxes, an influx of wealthy
taxpayers would mean an influx of capital to assist in the growth of state businesses and develop
state jobs. Florida continues to pursue this model of taxation today. See infra note 259 and
accompanying text; see also McGee, supra note 84, at 79 ("The State of Florida ... attracts the
accumulated wealth of many retirement-age people by not having an inheritance tax. Retirees move
to Florida bringing lifetime savings and causing a small boom in the trust and wealth management
industries. Accordingly, a government that abolishes these taxes would notice little change in the
amount of revenue raised.")
87. See Perkins, supranote 85, at 271-72.
88. See infra notes 114-17 and accompanying text for a brief discussion of Florida's decision to
prohibit an inheritance tax.
89. See Perkins, supra note 85, at 271-72 (illustrating how the death tax havens "advertised" the
tax benefits of living in these states).
90. See supra note 15 and accompanying text.
constitutional amendment prohibiting state death taxation. 9'
considered a similar repeal.92
Something had to be done.
III. BIRTH OF THE STATE DEATH TAx CREDIT (1924-1926)
By 1924, state death taxes faced competitive pressures on two fronts:
not only had Congress invaded the death tax field, but the states continued
battling among themselves. As the tax havens continued to target wealthy
citizens and their capital, individual state leaders elsewhere were powerless
to stem this tide. These state leaders thus weighed two equally distasteful
options: abandon this form of state revenue, or drive away some of their
State leaders preferred the former choice to the latter.93 As such,
interstate competition likely would have soon destroyed state death taxes.
However, instead of simply abandoning the field, state leaders pursued a
collective solution. Between 1924 and 1926, state leaders organized
national conferences to consider the problems plaguing state death taxation
and ultimately turned to Congress for relief. Congress responded to the
states' pleas with the 1926 state death tax credit. Instead of marking the end
of state death taxes, the period from 1924 to 1926 thus represents their
A century of ad hoc efforts to achieve interstate cooperation had
produced little success. In his message transmitting the Revenue Act of
1924 to Congress, President Coolidge called upon state leaders to meet and
pursue a collective solution.9 a William Bailey, the President of the National
Tax Association, answered this call. By letter sent to federal and state
officials, Bailey cited the "imperative need for concerted action." 95 He
summoned a group of state officials and academics from across the country
to St. Louis for a national conference to discuss issues of concern with
respect to state death taxation, as well as to devise proposed legislative
91. NAT'L COMM. ON INHERITANCE TAXATION, REPORT TO THE NATIONAL CONFERENCE ON
ESTATE AND INHERITANCE TAXATION 11-12 (1925) [hereinafter REPORT]. The Amendment passed,
and Nevada repealed its state death tax as ofJuly 1, 1925. Id. at12.
92. Id. at11-12; see also MAXWELL, supra note 15, at 333 ("California, which had up to this
time been the natural competitor of Florida as a domicile for retired millionaires, discussed the need
for parallel action.").
93. This notion is explored below in greater detail. See infra Part III.A.3.
94. PRELIMINARY CONFERENCE PROCEEDINGS, supra note 63, at 108-09 (statement of Mr.
Winston, Undersecretary of the Treasury).
solutions for Congress and the state governments.9 6 It would be the first of
three such meetings.
The records of these national conferences provide a vivid history of the
contemporaneous thoughts of state leaders as they wrestled with the ongoing
problem of interstate competition and the heightened threat posed by the
emerging tax havens. As such, they provide relevant insights not only into
the way past leaders viewed the challenges confronting the field of death
taxation, but also how modern leaders likely view a similar landscape.
1. Chronology of the National Tax Association Conferences
Bailey's 1924 letter to state leaders resulted in three conferences
devoted to discussion of the problems plaguing state death taxation.
The first event, the Preliminary Conference on Inheritance and Estate
Taxation ("Preliminary Conference"), was held in St. Louis, Missouri on
September 15, 1924 in conjunction with the National Tax Association's
seventeenth annual conference.97 While a valuable first step towards
collective action, this conference rightly was called "preliminary." The
meeting initially generated a questionable level of interest among state
governors, "not a great number of" which even replied to Bailey's 1924
letter.98 Furthermore, not a single federal official addressed the Preliminary
Conference.99 Treasury Undersecretary Winston did address the National
Tax Association meeting two days later, but did so only after clarifying that
he did not appear on behalf of the administration and did not expect to offer
any specific solutions to the problems confronting state death taxes.'00
While the Preliminary Conference was a timid first step towards unified
state action, the next conference represented a giant leap in that direction.
That follow-up meeting, the National Conference on Inheritance and Estate
Taxation ("First Conference"), was held in Washington, D.C. on February
96. Id. at 1-3.
97. See id. at l.
98. Id. at 3. Chairman Belknap, who had reported the lack of written response from state
governors, was heartened to observe that "the size of the audience argues that a good many of [the
Governors] took more interest than their replies would indicate." Id. The Chairman was less happy
two days later, when many of the delegates apparently opted to attend a baseball game rather than
the National Tax Association's Annual Conference. See id. at 102. The delegates making this
choice saw the New York Yankees defeat the St. Louis Browns in both games of double-header. See
Historical Standings, http://www.baseball-reference.com/games/standings.cgi?date=1924-09-17 (last
visited Mar. 15, 2006).
99. See PRELIMINARY CONFERENCE PROCEEDINGS, supra note 63, at 3-124.
100. Id. at 109 (statement of Mr. Winston).
19 and 20, 1925.0 l One need merely review the list of attendees at the First
Conference to comprehend its importance. Twenty-six states sent a total of
seventy-six delegates to the First Conference, while nearly 100 registered
guests observed the proceedings.1 0 2 Eight federal officials attended as well,
including President Coolidge, Treasury Secretary Mellon, and the Chairman
and three other members of the influential House of Representatives
Committee on Ways and Means."°3
After two days of presentations and debates, the delegates formed a
committee (later referred to as the Delano Committee, after its Chairman) to
complete the work begun at the First Conference. °4 The Delano Committee
was directed to further consider the relevant issues, develop specific
proposals for submission to the Congress at state legislatures, and to report
back to a future national conference.'0°
On November 10, 1925, some 250 delegates representing forty-two
states reconvened in New Orleans, Louisiana for a final conference, the
Second Conference on Inheritance and Estate Taxation ("Second
Conference"). 10 6 Participants at this meeting debated and ultimately ratified
the report prepared by the Delano Committee ("Report"), and approved its
transmission to Congress.10 7
Delegates Explore the Florida Problem
Delegates to the national tax conferences agreed that the root cause of
the interstate competition plaguing state death taxes had a name: Florida.'0 8
Speaker after speaker at these conferences criticized Florida for engaging in
a calculated effort to establish itself as a death tax haven and draw wealthy
taxpayers away from other states.109
101. See NAT'L TAX ASS'N, PROCEEDINGS OF NATIONAL CONFERENCE ON INHERITANCE AND
ESTATE TAXATION 1, 113 (1925) [hereinafter FIRST CONFERENCE PROCEEDINGS].
102. Id. at 195-200.
103. The following federal officials delivered formal addresses at the convention: President
Calvin Coolidge, Congressman William Green (Chairman, Committee on Ways and Means),
Congressman Ogden L. Mills (Member, Committee on Ways and Means), Congressman Cordell
Hull (Member, Committee on Ways and Means), Congressman W.A. Oldfield (Member, Committee
on Ways and Means), and Charles S. Dewey (Assistant Secretary of the Treasury). REPORT, supra
note 91, at 7. Secretary of the Treasury Andrew Mellon and Undersecretary Garrard Winston
attended a portion of the convention but did not deliver formal remarks. See id.
104. FIRST CONFERENCE PROCEEDINGS, supra note 101, at 192-93.
106. See SECOND CONFERENCE PROCEEDINGS, supra note 58, at 1.
107. See REPORT, supra note 91, at 7-10. In fact, the Report already had been presented to
Congress. See infra notes 157-60 and accompanying text.
108. See REPORT, supra note 91, at 11-12.
109. See, e.g., SECOND CONFERENCE PROCEEDINGS, supra note 58, at 17, 38 (statements of Mr.
Graves and Mr. Berry).
At the Preliminary Conference, William Belknap, a Kentucky legislator
and the conference chairman, wasted no time in turning the discussion
towards Florida. During his opening remarks, Belknap bemoaned Florida's
death tax policies:
I think Florida is going to cause us as much trouble as any other
state .... They are making a bid for the rich people of the country
to come down there, and they are going to cause all sorts of trouble,
because they wont [sic] come in on a fairly equitable basis with the
rest of the states.1' 10
Mr. Dunn of Ohio, the second speaker at the same event, was more
diplomatic in tone but no less clear in his view of Florida's intent. "Florida
undoubtedly is throwing out lines for capital to come into the state." ''
Dunn further postulated that Florida's tax policy was specifically intended to
lure the Rockefeller family to establish Florida domicile."l 2
Florida was represented at the Preliminary Conference," 3 but the State's
delegate offered no apologies for the course Florida had chosen to pursue. 114
He readily conceded that Florida indeed utilized its tax policies as a tool to
lure wealthy taxpayers to the State, a tool the State had "especially
emphasized in the last few years.""' 5 Undeterred by the criticism of his
State, the Florida delegate indicated that his State would continue to
compete for wealthy citizens not only by offering a currently-favorable tax
climate, but the promise of a permanently-favorable one. 1 6 For this reason,
Florida was in the process of implementing a constitutional amendment
barring the future imposition of a separate state death tax in Florida."i7
110. PRELIMINARY CONFERENCE PROCEEDINGS, supra note 63, at 6-7 (statement of Mr. Belknap).
11. Id. at 10.
112. Id. John D. Rockefeller is an interesting case study on the issue of state death taxation, as he
had documented contacts with several states and the resources to organize his affairs in the most
taxfavorable manner. Certainly, the entire battle over state death taxes was not centered upon one
individual, although the number of wealthy taxpayers of concern was rather small. For example, in
1924, a mere ninety-eight estates accounted for more than fifty percent of the total death tax revenue
collected by the state of New York. SECOND CONFERENCE PROCEEDINGS, supra note 58, at 15
(statement of Mr. Graves).
113. Florida, perhaps deciding that it had heard enough criticism, did not send a delegation to the
subsequent national conferences.
114. See PRELIMINARY CONFERENCE PROCEEDINGS, supra note 63, at 88.
117. Id. Florida voters approved the constitutional amendment in 1924. See Perkins, supra note
85, at 271. The amendment may have had more public relations significance than legal impact, as
The result of all of this legislation was a significant increase in the
amount of state death taxes collected. Total state death tax revenues surged
from $80 million in 1924 to over $180 million by 1930.172 Whereas from
1917 to 1923, total state tax revenues had grown at a rate 40% higher than
state death tax revenues, the period from 1923 to 1930 saw a reversal of that
trend. 173 In this latter period, state death tax revenues grew some 45% faster
than total state tax revenues. 7 4
As these new tax dollars flowed into state
coffers, the states could claim, quite rightly, that the federal
governmentnot the state's taxpayers-bore the burden of the tax. The state death tax
credit had neutralized the threat of interstate competition and revitalized
state death tax collections.
Not surprisingly, Florida was no fan of the state death tax credit. State
politicians bristled at the thought that an act of Congress had targeted their
campaign to attract wealthy taxpayers into the State. Floridians criticized
Congress for pursuing "the most dangerous precedent which has ever been
offered by. . . Congress in the history of time ....175 The State responded
not only with words but also with legal action: Florida's government
launched a constitutional challenge to the existence of the state death tax
On June 1, 1926, the State of Florida began its legal attack against the
state death tax credit by petitioning the U.S. Supreme Court for leave to file
173. See INTERSTATE COMM. ON CONFLICTING TAXATION, CONFLICTING TAXATION 98 (1935)
[hereinafter CONFLICTING TAXATION].
an official complaint against Andrew Mellon, the Secretary of the Treasury,
and David Blair, the Commissioner of Internal Revenue.' Florida's Bill of
Complaint contained two major arguments. First, the State argued that the
1926 estate tax, with its eighty percent state death tax credit mechanism,
represented an invasion of the sovereign rights of the State and was "a direct
effort on the part of the Congress... [t]o coerce the State of Florida into
imposing and levying an estate or inheritance tax .... Second, Florida
argued that since it imposed no state death tax to absorb the available state
death tax credit, Florida decedents would pay net federal estate tax at a
higher rate than their counterparts in other states. As such, reasoned Florida,
the federal estate tax was unconstitutional insofar as it was not imposed on a
"'uniform' basis as required by Article I, Section 8 of the U.S.
Florida's theory of damages resulting from imposition of the state death
tax credit is of particular relevance to this Article. As summarized in the
Supreme Court's opinion, Florida argued that the state death tax credit
directly injured the State insofar as it would "cause the withdrawal of
property from the state with the consequent loss to the state of subjects of
taxation."' 180 Florida thus argued that if the State lost its competitive death
tax advantage, it would face its own exodus of wealth, as residents
abandoned the former tax haven and returned to their original home states.
The Supreme Court denied Florida's petition. The Court's unanimous
opinion, penned by Justice Sutherland, characterized the alleged injury to
Florida as "purely speculative" and "indirect.'' 18' Furthermore, even if
177. FloridaSeeks to Initiate Test of Estate Tax Law in Supreme Court, 4 NAT'L INCOME TAX
MAG. 351 (1926); see Arthur W. Machen, Jr., The Strange Case of Florida v. Mellon, 13 CORNELL
L.Q. 351 (1928) (providing a contemporaneous analysis of the case).
178. Bill of Complaint at 6, Florida v. Mellon, 273 U.S. 12 (no docket number in original); see
also Mellon, 273 U.S. at 16; Action to Enjoin Collection of Estate Tax in Florida Stopped by
Supreme Court,5 NAT'L INCOME TAX MAG. 59 (1927).
179. Bill of Complaint at 7, Florida v. Mellon, 273 U.S. 12 (1926) (no docket number in original);
see also FloridaBegins Action to Test Validity ofEstate Tax Law, 4 NAT'L INCOME TAX MAG.
24950 (1926) (discussing the contentions made by the Attorney General of Florida on behalf of the
180. Mellon, 273 U.S. at 16; see also Brief on the Unconstitutionality of the Federal Estate Tax
and the Right of the State to Complain Thereof by Original Bill in this Court at 159, Florida v.
Mellon, 273 U.S. 12 (1926) (no docket number in original) ("The very effect intended by... those
responsible for the passage of this law, was to stop the flow of people and money into the State of
Florida-to check its development.").
181. Mellon, 273 U.S. at 18. It is unclear whether Justice Sutherland concluded merely that
Florida had failed to meet its evidentiary burden or whether the Court truly believed that taxpayers
do not base their choice of domicile at least in part on rates of state taxation. Either way, the Court's
opinion rightly can be criticized as based on a fairly rudimentary model of taxpayer behavior that did
not envision taxpayers taking any response to changes in tax rates. For example, the Court
concluded that if a migration out of Florida were to occur in response to changes in effective state
death tax rates, Florida could replace the lost revenue by merely increasing the rate of state tax on
Florida did sustain these injuries, the Court concluded that the law would
provide no redress. "If the act interferes with the exercise by the state of its
full powers of taxation or has the effect of removing property from its reach
which otherwise would be within it, that is a contingency which affords no
ground for judicial relief. 182
Florida's legal challenge to the state death tax credit having failed, the
State soon decided to avail itself of the available state death tax credit. In
1931, Florida adopted a pick-up tax.
C. The New Landscape
By 1935, a new state death landscape had begun to take shape.
state death tax credit clearly had made an impact on state leaders and had
spurred a movement towards increasingly uniform state death taxes. Yet the
vast majority of states had responded to the new credit not by abandoning
their traditional state inheritance taxes, but by merely adding additional
pickup taxes to the mix.' 84
As such, the new credit had not precipitated true
national uniformity. Especially with respect to smaller estates, considerable
interstate variation in death tax rates remained.
In order to illustrate this new tax landscape and evaluate the impact of
the state death tax credit, this section analyzes three hypothetical estates
respectively valued at $50,000, $1,000,000, and $10,000,000.185
case, a hypothetical decedent is assumed to have died in 1935, domiciled in
a separate property state.8 6
Also, in each case, the decedent is assumed to
those taxpayers who remained. Id. The Court did not explain why it felt this further change would
not prompt further migration.
182. Id. at 17.
183. Oakes, supra note 8, at 469.
184. Id. at 469-70.
185. As more fully discussed infra, data for these case studies is derived from CONFLICTING
TAXATION, supra note 173.
186. Two major systems of property law exist in the United States. In community property states
(Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin),
certain property acquired by a married individual is deemed to be owned by both spouses (the
"marital community") even if titled solely in one spouse's name. In contrast, a taxpayer in one of
the remaining states-the "separate property" states-owns 100% of the property titled in his or her
name. These different property systems have numerous consequences relevant to a variety of fields,
including property law, family law, estate planning, and taxation. Of relevance to this Article is that
the applicable system of property law in a state impacts the computation of a resident's gross estate
for death tax purposes. See generally Arthur W. Andrews, Community Property With Right of
Survivorship: Uneasy Lies the Head that Wears a Crown of Surviving Spousefor FederalIncome
Tax Basis Purposes, 17 VA. TAX REV. 577, 578 (1998); Jack M. Kinnebrew & Deborah Cox
Morgan, Community Property Division at Death, 39 BAYLOR L. REV. 1035 (1987). In order to
permit comparisons based solely on differences in state death tax laws, insulated from the effects of
have left 40% of his or her estate to a surviving spouse and 15% to each of
four children. These case studies illustrate the new tax
confronting decedents of various wealth levels and states of domicillea.nd87scape
The $50,000 Estate
In 1934, the federal exemption from estate tax was $50,000.188 Estates
at or below this level paid no estate tax and generated no state death tax
credit. Nevertheless, many of these estates were subject to state death
Traditional state inheritance taxes were the most likely form of state
death tax to impact a $50,000 estate.' 90 Thirty-seven of the thirty-nine states
that imposed state inheritance taxes in 1935 applied such taxes to estates
below the level of the $50,000 federal estate tax exemption, even if left to
the decedent's spouse and/or children.' 9' As such, in these thirty-seven
states, state governments routinely calculated, enforced, and collected state
death taxes on estates that were exempt from federal taxation and generated
no state death tax credit.
In contrast to state inheritance taxes, state estate taxes would have been
far less relevant to this hypothetical taxpayer. State estate tax laws in
thirtyfour of the thirty-nine states that imposed such taxes applied only to those
estates also subject to federal estate taxation. 92 Conversely, only five states
imposed estate taxes with an exemption below the $50,000 federal
Taking into account both inheritance taxes and estate taxes, the
disposition of this hypothetical taxpayer's $50,000 estate would have
state property laws, the community property states have been excluded from the analysis of the case
studies presented in this section. The data source for these studies incorrectly failed to characterize
Arizona as a community property state, even though the State has a rich community property
tradition. See John D. Lyons, Development of Community PropertyLaw in Arizona, 15 LA. L. REV
512 (1955). That error has been corrected in this Article.
187. These case studies also assume that all state death taxes are payable to the decedent's state of
domicile, thus ignoring issues relating to tax jurisdiction and interstate apportionment of tax revenue
(e.g., taxation of out-of-state real property).
188. CONFLICTING TAXATION, supra note 173, at 90.
189. See id.
190. See id.
191. New Hampshire and Oregon did not tax property passing to either spouse or lineal heirs. All
other states imposing inheritance taxes did so. In these states, the exemptions applicable to property
left to spouse and descendants most frequently were $10,000 or $20,000, with only three state
spousal exemptions exceeding $25,000 (Michigan: $30,000; Iowa: $40,000; Kansas: $75,000). See
id. at 91 tbl.49.
192. Id. at 92 tbl.50.
193. The applicable exemption levels were $10,000 in Rhode Island and Utah, $15,000 (plus a
$5,000 homestead exemption and $20,000 life insurance exemption) in Oklahoma, and $50,000 in
Mississippi. Id. North Dakota law featured a $20,000 exemption for spouse plus an additional
exemption of $5,000 per minor child and $2,000 for each other "first class heir." Id.
generated death taxes in thirty-four of the forty-one states analyzed. The
median tax due would have been a mere $150, ranging from a low of $0 in
several states to a high of $1,700 in Utah. Table 1 presents a summary of
the range of outcomes.
As Table 1 reveals, a $50,000 estate in 1935 would have generated only
modest death taxes in both nominal and relative terms. In twenty-nine
states, total death taxes would have been less than $300. Even in the two
states that imposed taxes over $900, these taxes could not be said to have
reached a level that would be significant in terms of taxpayer behavior.195
The $1,000,000 Estate
A $1,000,000 estate would have generated $169,100 in total death taxes
in 1935.96 An estate of this magnitude would have generated a state death
tax credit of $33,200, reducing the net federal tax to $135,900.' 9' The
194. State-by-state data figures: No Death Tax: Alabama, Colorado, District of Columbia, Florida,
Georgia, Illinois, Iowa, Kansas, Kentucky, Mississippi, New Hampshire; Tax $1 to $300: Maine
($100), Michigan ($100), Minnesota ($100), Missouri ($100), Nebraska ($100), New York ($100),
South Carolina ($100), Vermont ($100), Indiana ($150), South Dakota ($150), Delaware ($180),
Massachusetts ($200), North Carolina ($200), North Dakota ($200), Wyoming ($200), New Jersey
($250), Ohio ($250), Virginia ($250); Tax $301 to $600: Arkansas ($370), Rhode Island ($400),
Montana ($490), Maryland ($500), Oregon ($525), Tennessee ($525), Wisconsin ($540), Oklahoma
($600); Tax $601 to $900: Connecticut ($650), West Virginia ($900); Tax $901 to $1,200:
Pennsylvania ($1,000); Tax Over $1,200: Utah ($1,700). Id. at 99 tbl.51.
195. Even if these taxes did prompt taxpayers of modest means to relocate out of a state, the state
likely would not have been concerned.
196. Id. at 100 tbl.52.
197. Id. Note that the state death tax credit of $33,200 is approximately 20% (rather than 80%) of
the $169,100 federal death tax otherwise due. The state death tax credit was permanently tied to
1926 rates. See id. at 89. Thus, the federal government reserved to itself the full benefits of any
future increase in federal estate tax rates. Id. In 1932 and 1934, significant increases in federal
estate tax rates served to undermine the relative value of the state death tax credit. Id. This trend
existence of the state death tax credit served to level the death tax landscape
confronting a $1,000,000 estate, yet did not equalize state death taxation
nationwide. 198 Rather, even at the millionaire level, independent state
succession taxes, calculated without reference to the state death tax credit,
continued to be extremely relevant and resulted in widespread, but modest,
variation in state death tax rates. 199
Table 2 presents the full summary.
The state death tax credit had shaped the tax landscape summarized in
Table 2 in three major ways.
First, it had served as a basis for increasingly uniform state legislation,
especially among states that previously imposed little or no death tax.2 °1
continued in future decades. Whereas the state death tax credit absorbed some 76% of the amount
otherwise payable to the federal government in 1931, by 1952 the figure was down to a mere 10%.
See OVERLAPPING TAXES, supranote 10, at 84 (discussing the issue further with relevant data).
198. See CONFLICTING TAXATION, supra note 173, at 100 tbl.52.
200. State-by-state data figures: Tax Under $33,200: District of Columbia ($0), Wyoming
($19,000), Kentucky ($32,150); Tax Exactly $33,200: Alabama, Connecticut, Delaware, Florida,
Georgia, Indiana, Kansas, Maine, Maryland, Michigan, Minnesota, Nebraska, New Hampshire, New
Jersey, Ohio, Pennsylvania, Rhode Island, Virginia; Tax $33,201 to $43,200: Missouri ($34,600),
Vermont ($34,750), Massachusetts ($35,250), Mississippi ($36,000), South Carolina ($37,100),
Tennessee ($38,525), Iowa ($40,050), Illinois ($40,800), North Carolina ($41,150), New York
($42,500); Tax $43,201 to $53,200: South Dakota ($48,250), Utah ($49,200), West Virginia
($52,000), Oklahoma ($52,100), Colorado ($53,020); Tax $53,201 to $63,200: Arkansas ($57,150),
Wisconsin ($61,000), Montana ($61,990); Tax Over $63,201: Oregon ($75,775), North Dakota
201. See, e.g., Oakes, supranote 8, at 474.
Eighteen states, as a result of pick-up tax legislation specifically designed to
achieve this result, imposed a tax exactly equal to the credit.20 2
Second, the credit eliminated any competitive advantage to be gained by
imposing a state death tax lower than the available credit. The District of
Columbia was the only separate property state that failed to impose any state
death tax on a $1,000,000 estate,0 3 and just two other states imposed taxes
below the $33,200 level. 1°4 Since the federal estate tax correspondingly
increased to the extent a state failed to utilize the full available credit,
taxpayers in these three states ended up in exactly the same place as
taxpayers in the eighteen states where state death tax rates matched the
available credit.2 5 As such, as a result of the crediting mechanism, the
combined federal and state tax burden was exactly equal for taxpayers dying
in twenty-one states.
Third, even though combined federal and state death taxes were only
exactly uniform for taxpayers in twenty-one of forty-one states, the state
death tax credit muted the effect of this continued diversity in state death tax
laws. For example, ten states imposed state death taxes between $33,201
and $43,200 on a $1,000,000 estate. 0 6 After adjusting for the effect of the
$33,200 state death tax credit, the net impact of these death taxes was
reduced to below $10,000, a reduction of seventy percent or more. Taking
into account the credit, thirty-nine of forty-one states studied imposed net
state death taxes of less than $30,000. The state death tax credit thus offset
more than half of the state death taxes imposed by these thirty-nine states,
thus significantly reducing any anti-competitive impact of such taxes.
It is crucial to note that while the state death tax credit muted the impact
of the state death taxes that exceeded $32,200, it seems to have done little to
inspire the state governments that imposed such taxes to actually cut tax
rates. Of the eleven states that would have imposed more than $32,200 of
states death taxes on a $1,000,000 estate in 1924, only five had reduced
those taxes by 1935.207 Only a single state-Michigan-had reduced its
202. For a list, see supra note 200.
203. Nevada, the only other state without a state death tax in 1935, is a community property state
and is thus excluded from these case studies.
204. These two states are Wyoming ($19,000) and Kentucky ($32,150). See supra note 200.
205. Even though these states offered their taxpayers no financial advantage by failing to capture
the full available state death tax credit, the states "left money on the table" by failing to maximize
this source of revenue. Steven D. Nofziger, EGTRRA and the Past,Present,and Futureof Oregon's
InheritanceTax System, 84 OR. L. REv, 317, 320 (2005).
206. See supra note 200 and accompanying table.
207. Compare CONFLICTING TAXATION, supra note 173, at 100 tbl.52 with id. at 101 tbl.53.
state death taxes to exactly conform to the available credit.20 8 The state
death tax credit had thus shaped the tax landscape merely by diminishing the
relative impact of these taxes and not by spurring states to abandon their
traditional state inheritance taxes in favor of pick-up taxes.20 9
In sum, this case study clearly reveals the continued relevance of state
inheritance tax laws to an estate of $1,000,000, as well as considerable
resulting state-to-state variation in tax rates. Yet it also illustrates that the
state death tax credit had achieved significant success in creating a basis for
uniform state tax rates and thereby reducing the potential for interstate
The $10,000,000 Estate
The hypothetical taxpayer with a $10,000,000 estate would have owed
at least $4,387,600 in combined federal and state death taxes.210 Of this
amount, $1,067,600 would have been available to the states via the state
death tax credit, while a minimum of $3,320,000 was reserved for the
federal government.2 1
The relative lack of uniformity that still existed at the level of
$1,000,000 estates largely disappeared by the time estates reached the
$10,000,000 level. At this higher level, state inheritance taxes became
decreasingly relevant as the state death tax credit exceeded those taxes in
nearly every state. State pick-up taxes conversely increased in relevance.
Table 3 summarizes the tax landscape confronting a $10,000,000 estate.
208. Compareid. at 100 tbl.52 with id. at 101 tbl.53.
209. Although the retention of traditional state succession taxes undermined efforts to achieve
uniform state death taxation, at least with respect to the $ 1,000,000 estate, these taxes provided two
crucial benefits to state governments. First, as seen in this and the prior ($50,000 estate) example,
succession taxes helped maximize total state revenues, as many estates continued to generate state
death taxes that exceeded the available state death tax credit. At the same time, since the states had
enacted pick-up taxes in addition to, and not in lieu of, their traditional death taxes, the states had not
become dependant on the continued existence of that credit. As such, the state death tax credit was a
luxury and not a necessity. See infra Part V.B to explore the later reversal of this trend.
210. CONFLICTING TAXATION, supranote 173, at 100 tbl.52.
$1 to $300,000
As demonstrated by Table 3, state death taxes were far more uniform in
the case of a $10,000,000 estate than they had been in the two prior cases.
In the case of a $10,000,000 estate, twenty-seven of forty-one states studied
imposed death taxes exactly equal to the available state death tax credit.
Eight more states collected less than the available credit, which did nothing
to reduce the $4,387,600 combined death tax burden on their residents.213 In
the aggregate, taxpayers in thirty-five of forty-one states thus would have
paid exactly $4,387,600 in combined federal and state death taxes.21 4
In only six states did state death taxes assessed against a $10,000,000
estate exceed the available state death tax credit. 215 In five of these states,
the excess was relatively modest, ranging from $7,800 in Mississippi 216 to
212. State-by-state data figures: Tax Under $1,067,600: District of Columbia ($0), Wyoming
($199,000), South Dakota ($391,250), Utah ($499,200), South Carolina ($575,100), Kentucky
($695,650), Oklahoma ($791,400), Arkansas ($819,200); Tax Exactly $1,067,600: Alabama,
Colorado, Connecticut, Delaware, Florida, Georgia, Indiana, Iowa, Kansas, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey,
North Carolina, Ohio, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, Wisconsin; Tax
$1,067,600 to $1,367,600: Mississippi ($1,075,400), Illinois ($1,216,000), New York ($1,335,500),
West Virginia ($1,360,000); Tax Over $1,367,600: Oregon ($1,415,775), North Dakota
213. Id. These eight states were District of Columbia ($0), Wyoming ($199,000), South Dakota
($391,250), Utah ($499,200), South Carolina ($575,100), Kentucky ($695,650), Oklahoma
($791,400), and Arkansas ($819,200). Id. All eventually enacted pick-up taxes.
214. See id.
215. See id. These six states were Illinois ($1,216,000), Mississippi ($1,075,400), New York
($1,335,500), North Dakota ($2,164,300), Oregon ($1,415,775), and West Virginia ($1,360,000).
216. State death taxes of $1,075,400 versus the state death tax credit of $1,067,600. Id.
$348,175 in Oregon.21 7 In the sixth state, North Dakota, death taxes
remained at a level that defies explanation.21 8
In sum, in the case of a $10,000,000 estate, combined federal and state
death tax rates had become increasingly uniform across state lines. At this
asset level, the state death tax credit seemed to be functioning exactly as its
proponents had hoped. An increasingly uniform pattern of death taxation
emerged, enabling more states to collect more tax-especially from the
largest estates-without fearing any competitive disadvantage.
Yet as discussed in the following section of this Article, trouble was
brewing in the field of state death taxation beneath its placid surface.
The 1925 Report of the National Tax Committee argued that the state
death tax credit should be a temporary measure, serving just long enough to
coerce the tax havens back towards the fold and to provide an impetus for
passage of uniform state death tax laws.219 Once states had adopted such
laws, Congress would be able to abandon the field, relying on inertia to keep
the uniform state death taxes in place.
As state death taxes evolved during the twentieth century, two major
trends in state death tax legislation undermined this original plan. These
trends, motivated at least in part by interstate competition, ultimately caused
uniform state death taxes to become completely dependent on the continued
existence of the federal estate tax and the state death tax credit. By oversight
or otherwise, the state governments led themselves away from the original
intent of the state death tax credit and towards an unforeseen disaster named
A. A ColossalMiscalculation?
The original proponents of the state death tax credit regime may have
made a colossal miscalculation. The Delano Committee's Report seemed to
assume that states seeking to avail themselves of the state death tax credit
would do so as New York had done: by adopting a state estate tax rate table
that mirrored the state death tax credit rates. 220 However, while an
increasing number of states indeed came into uniformity with the other
states, many did so by defining these new state estate taxes in terms of any
217. State death taxes of $1,415,775 versus the state death tax credit of$1,067,600. Id.
218. State death taxes of $2,164,300 versus the state death tax credit of$1,067,600. Id.
219. See supra notes 139-41 and accompanying text.
220. See REPORT, supra note 91, at 11-12, 22-25. The Report was not explicit on this point.
However, if the authors had expected otherwise, it would have made no sense for them to assume
state death taxes would remain in place after repeal of the federal credit.
state death tax credit available from time to time. 221 As such, if the credit
ever disappeared, so too would these state death taxes. In these states, and in
others that would follow a similar path, state estate taxes and the state death
tax credit had become inextricably coupled.
Even as early as 1935, the problem had become a national one. By that
year, the governing pick-up statutes in twenty-six states were drafted by
reference to the available federal credit, without any independent rate
table.222 With this type of state law in widespread use, continued national
uniformity required a permanent federal estate tax. If Congress ever did
abandon the field, pick-up taxes would disappear in these twenty-six states,
leaving behind only the state's traditional inheritance tax regime, if any. 23
States that had restated the pick-up rates in their statutes, rather than merely
referencing them, would retain these taxes after repeal of the credit but
would face new competitive pressures as the vast majority of other states
ceased imposing equivalent taxes.
Using available tax data and assuming no immediate legislative
response to a repeal of the state death tax credit, it is possible to produce a
hypothetical model of state death taxes in the event of federal repeal. Table
4 presents one such model, comparing the actual state death taxes imposed
on a $10,000,000 estate in 1935 (from Table 3224) with the taxes that would
have been imposed on that estate in the event of a 1935 repeal of the state
death tax credit.225
221. See Perkins, supra note 85, at 283.
222. The states in this category were: California, Connecticut, Delaware, Indiana, Kansas,
Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska,
New Hampshire, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Vermont,
Virginia, Washington, West Virginia, and Wisconsin. See CONFLICTING TAXATION, supra note 173,
at 92 tbl.50.
223. In addition to the twenty-six states referenced above, the State Constitutions in Alabama and
Florida restricted the imposition of any tax not offset by a federal credit. Thus, pick-up taxes in
twenty-eight states were dependent upon the continued existence of the state death tax credit. Id. at
224. See supra note 212 and accompanying table.
225. This model is based on data contained in Tables 50 and 51 of CONFLICTING TAXATION,
supranote 173, and has been produced as follows. The starting point for the model is Table 51, a
state-by-state list of independent state death taxes (excluding pick-up taxes) imposed on a
$10,000,000 hypothetical estate. See CONFLICTING TAXATION, supranote 173, at 99 tbl.51. For the
reasons detailed previously, I have removed the community property states from this analysis and
added the District of Columbia, which has no independent death tax. See supra note 186 and
accompanying text. As a final adjustment in order to complete the model, I added back those
pickup taxes that would survive repeal of the state death tax credit. In making this adjustment, I
concluded that repeal of the state death tax credit would result in elimination of all of twenty-six
pick-up estate taxes defined directly by reference to such credit, as well as those in Mississippi (per
note "b" to Table 51), Florida (tax would be prohibited by State Constitution) and Alabama (tax
FIGURES ASSUMING REPEAL
OF STATE DEATH TAX CREDIT227
ACTUAL 1935 FIGURES
As revealed by Table 4, a repeal of the state death tax credit in 1935
would have undermined the uniform tax landscape previously seen in Table
3 in two significant ways. First, repeal of the state death tax credit would
have slashed the states' death tax revenues. With the state death tax credit in
place, thirty-three states had collected state death taxes of $1,067,600 or
more from an estate of this magnitude. In the event of the credit's repeal,
would be prohibited by State Constitution). This left just Colorado, Iowa, and Rhode Island with
pick-up taxes that would survive repeal of the state death tax credit. These three states thus are
reported in Table 4 of this Article as continuing to collect exactly $1,067,600 of state death taxes. I
also have assumed that no states would have taken affirmative action to "decouple" and impose a
separate state death tax after repeal of the state death tax credit.
226. See supra note 212 for data.
227. State-by-state data figures: No Death Tax: Alabama, District of Columbia, Florida, Georgia,
New Hampshire; Tax Under $500,000: Nebraska ($99,500), Maryland ($100,000), Minnesota
($158,050), Wyoming ($199,000), Pennsylvania ($200,000), Maine ($283,250), Kansas ($364,750),
Indiana ($365,800), Delaware ($382,980), Ohio ($383,500), Connecticut ($383,650), South Dakota
($391,250), Virginia ($417,250), North Carolina ($470,300), Vermont ($480,750), Tennessee,
($488,525), Utah, ($499,200); Tax $500,001 to $1,066,999: South Carolina ($575,100), Missouri
($562,600), Michigan ($567,000), Massachusetts ($668,750), Kentucky ($695,650), Montana
($768,610), Oklahoma ($791,400), Arkansas ($819,200), New Jersey ($894,750), Wisconsin
($931,000); Tax Exactly $1,067,000: Colorado, Iowa, Rhode Island; Tax Over $1,067,000:
Mississippi ($1,075,400), Illinois ($1,216,000), New York ($1,335,500), West Virginia
($1,360,000), Oregon ($1,415,775), North Dakota ($2,164,300). See CONFLICTING TAXATION,
supranote 173, at 99 tbl.5 1.
$1 or more
just nine states would have captured that amount of revenue. Second, repeal
of the state death tax credit would have destroyed the considerable
state-tostate uniformity in effective state death tax rates and reignited interstate
competition. While in place, the state death tax credit served to offset the
impact of all state death taxes in thirty-five states, leaving just six states that
imposed a net state death tax after considering the credit's effect. Assuming
repeal of that credit, these figures would have been reversed, with taxpayers
in thirty-six of forty-one states facing net state death tax burdens that varied
widely based on state of domicile.
From this perspective, the state death tax credit had achieved a false
victory. While state death taxes appeared widely uniform, they would
remain so only as long as the federal government continued its "temporary"
involvement in the field. 228
continued existence of the state death tax revenue is now dependent upon the
support of the federal death tax ....[T]his source of revenue would dry up
if the federal government abandoned this field. 2 29
Without a Net
1975, every state but
taxation.23 ° Yet even half a century after inception of the state death tax
credit, only six of these states utilized a pick-up tax as their sole death tax. 231
The other forty-four jurisdictions retained their independent state death
228. It is unclear why states drafted their laws in this manner. Three intuitive possibilities are (1)
tying state law to the available credit made the drafting of state legislation relatively simple; (2) this
approach eliminated the need for any future conforming legislation if Congress ever modified the
state death tax credit rates; and (3) directly coupling a state's death tax to the state death tax credit
appeased those worried about interstate competition, since it ensured that the state's taxpayers would
never be subject to a "net" out-of-pocket state death tax.
229. Ralph H. Dwan & Earl A. Ruth, Reallocationof Death Taxes Between the FederalandState
Governments, 45 MINN. L. REV. 559, 564 (1961) (emphasis omitted). Dwan, former Assistant Chief
Counsel of the IRS, and Ruth, former Chief of the Estate and Gift Tax Branch, argued that the
federal estate tax was so integral to the existence of state death taxes that the two systems should
simply be merged, with Congress collecting a single tax and sharing the resulting revenue with the
states. Id. Similar proposals can be traced back to at least 1925. See FIRST CONFERENCE
PROCEEDINGS, supra note 101, at 63 (address of Professor Seligman).
230. See generally Deborah Huffman Schenk, Estate Planning: Toward Reducing State Death
Tax Liability Within the Bounds of Maximum Beneficial FederalEstate Tax Treatment, 41 BROOK.
L. REV. 503, 503-40 (1975) (discussing the wide variety of state death tax regimes in place at this
231. See id.
unchanged since the 1930s.
of death taxation had remained largely
In addition to helping maximize state revenue, retention of independent
state death taxes formed a crucial safety net for the state governments. 233 If
Congress ever repealed the state death tax credit, these independent state
death taxes would remain in place and would serve to minimize the fiscal
impact resulting from the change in federal law.
As the twentieth century drew to a close, state after state abandoned
their traditional inheritance taxes and migrated towards use of a pick-up
estate tax as the sole death tax. Once again, interstate competition was one
of the motivating factors.234 A separate state death tax always meant that tax
havens like Florida would maintain some incremental benefit in the battle to
attract prosperous citizens.
In earlier decades, states seemed to accept a
modest level of variation in death tax rates. Yet in this era, state politicians
began to focus on the issue of uniformity as never before.
Politicians supporting the repeal of independent state inheritance taxes
made clear that tax competition was a major motive for this movement.
When suggesting the repeal of New York's separate estate tax, Governor
Pataki issued a press release touting a pick-up tax as a means of stemming
migration from the State. "My proposal will relieve a great tax burden on
our middle class and working families, encouraging parents and
grandparents to remain here in New York with their children, grandchildren
and lifelong friends.,,235
The State Senator proposing Connecticut's repeal
232. See id.
233. See supranote 209 and accompanying text.
234. Obviously, interstate competition was just one factor. While full consideration of the other
factors is beyond the scope of this analysis, it is worth briefly noting two. One likely factor was the
1976 passage ofthe Tax Reform Act of 1976, Pub. L. No. 94-455, 90 Stat. 1520, followed soon after
by the 1981 passage of the Economic Recovery Tax Act of 1981, Pub. L. No. 97-34, 95 Stat. 172.
Taken together, these two acts completely altered the structure of the federal estate tax. See David
L. Case & Steven W. Phillips, Death and Taxes-The 1976 Estate and Gift Tax Changes, 1976
ARIz. ST. L.J. 321 (1976); Colloquium, ParadigmaticState Inheritance, State Estate and Gift
Taxation, and the ERTA, 34 RUTGERS L. REV. 699, 700-37 (1982). Abandoning their traditional
state death taxes thus spared the states from having to rewrite those tax laws to coordinate with these
fundamental federal changes. A second likely factor was a desire to ease administrative burdens, as
a state death tax based exactly on the state death tax credit could be collected using very basic tax
forms. Whatever the reason, this trend toward uniform death taxation follows a similar trend in state
income taxes during the 1960s and 1970s. During that period, many states abandoned separate state
income tax laws in favor of new statutes based on federal income tax concepts. These state statutes,
known as "tracking" statutes, generally adopted federal gross income or federal adjusted gross
income as the starting point for state income tax calculation. See Sidney L. Cottingham, State
Adoption ofFederal Taxing Concepts-An Approach Offering Simplification ofState Income, Death
and Gift Taxes, 51 N.C. L. REv. 834, 836 (1973) (analyzing state income tax "tracking statutes" and
arguing for their extension to death taxes).
235. Press Release, Office of Governor George Pataki, Governor Pataki Calls for Elimination of
Estate and Gift Taxes (Jan. 9, 1997), http://www.state.ny.us/govemor/press/older-years/jan.9.html;
see also Nancy O'Hagan, New York Lifts Death Tax Penalty, 25 FORDHAM URB. L.J. 135, 141
(1997) (describing the repeal of the New York estate tax).
of its succession tax similarly urged his colleagues to eliminate a tax that
was making Connecticut "noncompetitive" by "providing a barrier to the
retention of retired people and providing an incentive for them to move out
of state. 236 His counterpart in the Connecticut House of Representatives
agreed: "By eliminating this tax ...we will be removing yet another reason
for people to leave the State to avoid our taxes. 237 Leaving no doubt as to
which state had inspired the move, he added, "This is a bill ... I hope will
resound from the shuffle board courts of Tampa to the tennis courts of
Orlando to the beaches of the Keys. 238
These politicians were not isolated voices. Rather, a major empirical
study of state activity concluded that the actions taken in states like New
York and Connecticut were part of a major national trend "of intense
interstate tax competition due to the growing size and political influence of
the elderly population. 239
While the decision to rely exclusively on the state death tax credit would
ultimately prove disastrous, 24° it spread across the country. Between 1976
and 2001, thirty-one states abandoned their traditional stand-alone state
death tax in favor of a pick-up tax.24 1 Table 5 places this trend in historical
context by summarizing state death tax laws as they existed at several times
during the twentieth century. The table demonstrates the systematic
movement away from state-specific death taxes and towards complete
reliance on state estate taxes tied directly to the state death tax credit, a trend
that rapidly intensified in the late twentieth century.
236. 38 S. Proc., Pt. 14, 1995 Sess., p. 3511 (Conn. 1995) (statement of Sen. Nickerson).
237. 38 H.R. Proc., Pt. 18, 1995 Sess., p. 4832 (Conn. 1995) (statement of Rep. Schiessl).
239. Karen Smith Conway & Jonathan C. Rork, Diagnosis Murder: The Death of State Death
Taxes, 42 ECON. INQUIRY 537, 537 (2004).
240. See supra Part VI.A.
241. Conway & Rork, supra note 239, at 537.
No State Death Tax 6 3
State Death Tax
As Sole State Death Tax 43
State Death Tax
Plus Pick-Up Tax
States With Pick
Up Tax As Sole
State Death Tax (No Independent State Death Tax)
In what would turn out to be unfortunate timing for the states involved,
the few years just prior to passage of EGTRRA saw a number of states join
this movement towards elimination of separate death taxes. North Carolina
repealed its separate state inheritance tax effective January 1, 1999.243
Mississippi reduced its state estate tax to match the available credit effective
January 1, 2000.24 Montana voters approved a ballot initiative repealing the
State's inheritance tax effective December 31, 2000.245 South Dakota voters
approved a constitutional amendment repealing the state's inheritance tax
effective June 30, 2001.246
VI. THE MODERN LANDSCAPE
What Hath EGTRRA Wrought?
After EGTRRA, the state death tax credit is but a memory. After eighty
years of increasing uniformity in the field of state death taxes, EGTRRA
completely altered the prevailing state death tax landscape. The vast
242. Data Sources: 1916, 1932: DOUBLE TAXATION, supra note 172, at 123-24; 1924: Oakes,
supranote 8, at 468; 1953: OVERLAPPING TAXES, supra note 10, at 54 tbl.31; 1975: Schenk, supra
note 230, at 504-08; 1990: 1990 St. Tax Handbook (CCH), at 461-660; 2000: Repeal of the Federal
Estate Tax Would Cost State Governments Billions in Revenue, supra note 36, at 2 n.2, 3 tbl. 1.
243. N.C. GEN. STAT. §§ 105-2 to 105-32, repealedby 1998 N.C. Sess. Laws 212 (effective Jan.
1, 1999, and applicable to the estates of decedents dying on or after that date).
244. MISS. CODE ANN. § 27-9-5 (1991) (amended 2000).
245. 2000 Mont. Laws 116 (approved by electorate on Nov. 7, 2000).
246. S.D. CONST. art. XI, § 15.
InterstateCompetition andState Death Taxes
majority of states, with pick-up estate tax laws drafted by reference to the
available state death tax credit, saw their estate taxes fade away.247 The
remaining few states, with pick-up taxes structured to remain in place even if
the credit was to be repealed,248 retained their full death taxes but suddenly
imposed a significant net tax burden on their taxpayers. Had the states taken
no action in response to EGTRRA, fewer than half would have imposed any
form of state death taxes after January 1, 2005,249 the lowest percentage in a
Many state governments did respond to EGTRRA, at least temporarily.
Nine states, including Illinois, Maine, Maryland, Massachusetts, Nebraska,
New Jersey, Rhode Island, Vermont, and Wisconsin, enacted new death
taxes, replacing pick-up taxes tied to the state death tax credit with
decoupled estate taxes designed to replace the lost revenue.2 5 0 At least two
additional states, Minnesota and Oregon, took legislative action to reaffirm
or clarify that their state death taxes were not repealed by passage of
EGTRRA. 251 Conversely, three states-Arkansas, South Carolina, and
South Dakota-moved in the opposite direction, affirmatively repealing
their state estate taxes in light of EGTRRA.2 2 Those three states now stand
on equal footing with the twenty-three other states that simply took no
247. Due to ambiguities in state death tax laws in effect prior to EGTRRA, it is difficult to
precisely determine how many state estate taxes would have survived the repeal of the state death tax
credit absent state legislative action. For example, the Washington State Supreme Court needed to
interpret the effect of EGTRRA on that state's estate tax law. See infra note 255 and accompanying
text. State legislatures in several other states took legislative action either to repeal or reaffirm their
state estate taxes after EGTRRA, thus mooting the question of how those taxes would have been
interpreted in the absence of such legislative action. See infra notes 251-52 and accompanying text.
The range of estimates runs from five states to eleven. See MINN. HOUSE OF REPRESENTATIVES
RESEARCH DEP'T, STATE RESPONSES TO THE 2001 FEDERAL ESTATE TAX CHANGES 5 tbl.B (Feb.
2004) (concluding that eleven states' estate tax laws referenced federal law at a fixed point in time
and thus were immune from changes made by EGTRRA); see also Linda O'Brien, Tax Trends:
States Address Declining Tax Revenues, TAXES, Apr. 1, 2005, at 51, 52 (concluding that estate tax
laws in only five states would survive the repeal of the state death tax credit).
248. The pick-up laws in these states referenced federal law at a fixed point in time and thus were
immune from changes made by EGTRRA. As noted, supra note 247, there were between five and
eleven states in this category, depending on the interpretation of the applicable state statutes.
249. See MINN. HOUSE OF REPRESENTATIVES RESEARCH DEP'T, supra note 247, at 5 tbl.B (lists
ten states with pick-up taxes not automatically repealed by EGTRRA and twelve other states with
stand-alone death taxes, for a total of twenty-two states that would continue to impose state death
taxes as of 2005). I would modify this analysis by adding the District of Columbia-which was
excluded from the source cited but is considered a state for purposes of this Article-and subtracting
Louisiana, since the State had enacted legislation to phase-out its separate state death taxes between
2001 and 2005. With these changes, the total remains twenty-two.
250. See id. at 8-10, 12.
251. Seeid.at O-11.
252. See id. at 11.
legislative action as EGTRRA repealed their entire state death tax
The list of states with death taxes remains in flux. Connecticut joined
the list on June 30, 2005 when Governor Rell signed legislation imposing a
new state estate tax.254 Washington left the list on February
the Washington Supreme Court concluded that the State's death tax had
been repealed by EGTRRA,255 but returned to the list on May 17, 2005 when
Governor Gregoire signed a new, "decoupled" version of the tax. 256 North
Carolina's Governor signed that State's new decoupled estate tax legislation
on June 30, 2005, just hours before a twice-delayed repeal of its prior estate
tax was due to take effect. 25 7
With respect to state death taxes, the nation is now divided. Half of the
states impose a state death tax; the other half do not. In just four years,
EGTRRA thus undermined eighty years of movement towards uniform
national death taxation. The elimination of the state death tax credit
eliminated a free source of revenue for the states and rekindled old fears of
significant tax-motivated migration from states that impose death taxes to
those that do not. No amount of state legislation can reverse what EGTRRA
After all of this activity, one might hope that stability has returned to the
field of state death taxes. History, however, suggests that it has not. A
major reason, once again, is interstate competition. The state death tax
uniformity of the late twentieth century is now but a memory. Interstate
competition to attract wealthy residents begins anew. This time, Congress
has left the fray, leaving state leaders to sort out matters for themselves.
Florida seemingly has no intention of imposing a decoupled state death
tax to replace the $800 million 25 8 of annual death tax revenue lost to
EGTRRA. Rather, State politicians have decided to turn a fiscal challenge
into a marketing opportunity. While leaders in many other states focused on
drafting new tax legislation, Florida Governor Jeb Bush appointed a
253. The twenty-three states are Alabama, Alaska, Arizona, California, Colorado, Delaware,
Florida, Georgia, Hawaii, Idaho, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada,
New Hampshire, New Mexico, North Dakota, Texas, Utah, West Virginia, and Wyoming. See id. at
254. 2005 Conn. Pub. Acts no. 02-251, §§ 66, 69, available at
255. Estate of Hemphill v. Dep't ofRevenue, 105 P.3d 391, 39
3 (Wash. 2005
256. S.B. 6096, 59th Leg., Reg. Sess. (Wash. 2005).
257. See N.C. GEN. STAT. § 105-32.2 (200
3), amended by 2005
N.C. Sess. Laws 144.
258. States Can Retain Their Estate Taxes Even as the Federal Estate Tax is Phased Out, supra
note 36, at 14 tbl.4 (estimating revenue loss for year 2007).
"Destination Florida Commission" on July 29, 2002 in order to "evaluate
Florida's competitive position in attracting retirees and to recommend ways
to make Florida more retiree friendly., 25 9 One of the Commission's
recommendations is for Florida to continue its favorable tax policies. 260 The
original tax haven is back in business.
The popular media has fanned the flames of this renewed interstate
competition. One need not read past the headlines to figure out the advice
being dispensed. Readers of Forbes have been encouraged to say, "Florida
or Bust.",261 Wall Street Journal subscribers have been educated on "A
Reason to Relocate., 262 In states with death taxes, local newspapers warn of
a pending exodus of wealth. A front-page article in Crain's New York
Business decried that retirees are simply "fleeing New York" in response to
its state death tax.263 The ConnecticutLaw Tribune titled its editorial about
the new Connecticut death tax "A 'Run Away' Tax," predicting state
residents would run away to Florida in response.26
This media pressure has both molded public opinion and helped shape
the agenda for the field of estate planning. Helping taxpayers choose their
state of domicile has become a fundamental element of modem estate
259. DESTINATION FLORIDA COMMISSION, FINAL REPORT WITH RECOMMENDATIONS 1 (2003),
available at http://www.ccfj.net/DestFlaFinRep.html. The Destination Florida Commission's report
also answers the question of why the State is so interested in attracting (wealthy) retirees:
This report reflects research that has shown that Florida cannot afford to lose the
significant net gain income, services and contributions that retirees bring to the state.
Direct spending by mature Floridians and the value of their federal health benefits is
estimated at $150 billion. From a fiscal perspective, Florida's elder residents represented
a net benefit of $2.8 billion in taxes, to state and local governments, in the year 2000.
These residents added even more through their participation in employment,
volunteerism, charitable contributions and community involvement.
Id. (footnote omitted).
261. Ashlea Ebeling, Florida or Bust, FORBES, Mar. 15, 2004, at 171. Ms. Ebeling's article
features a chart segregating states into three groups based on their death tax laws: "retire here in
peace," "targeted tax," and "shakedown." Id.
262. Kaja Whitehouse, A Reason to Relocate: Death Taxes: Burdenfor Heirs Depends On Where
You Live or Die As States Rewrite Rules, WALL ST. J., Nov. 5, 2003, at D2.
263. Tom Fredrickson, Rich residents flee as state's estate tax bites; More retirees change
primaryresidencesas gap between NYS, no-tax states widens, CRAIN'S N. Y. BUS., Feb. 14, 2005, at
I ("An increasing number of rich retirees are fleeing New York to escape the state's estate tax,
triggering a loss of millions in sales, charitable donations and income tax receipts.").
264. Editorial, A 'Run Away' Tax, CONN. L. TRIB., June 1
, at 20 ("Florida is such a pretty
state. The bougainvillea burst with beautiful color. The golf is good just about all year round. No
one ever dies there of a heart attack while shoveling snow .... Sure, one has to contend with an
occasional hurricane. But what one doesn't have to worry about is an estate tax ....").
planning practice. 26' Domicile considerations have become so paramount
that at least one author has suggested that lawyers in states with death taxes
may have an ethical duty to discuss with estate planning clients the virtues
of moving out of state.266
Amid this backdrop, state leaders seem to be presented with a choice:
lose your state death taxes or lose your wealthy residents. A past generation
of state leaders faced a similar conflict and confronted a similar decision.
Presented with the choice of losing state residents or abandoning state death
taxes, they were prepared to choose the latter. The Congress of 1926
preempted that decision. The Congress of 2006 seems unlikely to take
As such, state leaders of 2006 may have no political choice but to finish
what their predecessors started. Looking out across the new death tax
landscape after EGTRRA, modem state leaders may consider it futile to
compete with Florida and the other death tax havens. They may simply
decide that state death tax revenues come at too high a political cost and turn
elsewhere for needed tax dollars.
Throughout the twentieth century, interstate competition to attract and
retain wealthy residents shaped the field of state death taxation. As the
twenty-first century began, the passage of EGTRRA and repeal of the state
death tax credit precipitated a fundamental change in state death tax regimes
and significantly altered the competitive pressures facing states that impose
The new landscape is one no current state leaders have experienced
during their term in office. Yet, it strongly resembles a prior one. The death
tax havens of 1924 have returned,267 bringing old challenges to a new
generation of state leaders. The considerations confronting modem
politicians after the repeal of the state death tax credit resemble those which
faced their predecessors some eighty years ago, before the credit's birth.
As such, history has much to teach about modem state death taxes. It is
a history that has been all but lost in the current debate, which so often views
EGTRRA as the starting point for analysis. By rediscovering that history,
we can see how the events of the early twenty-first century fit in a far larger
265. See Dean L. Surkin, The Impact of the Decoupling of State Estate Taxes on a Taxpayer's
Choice of Domicile, 101 J. TAX'N 49 (2004); see also David Scott Sloan & Christopher Boyett,
Advising Clients Who Move to Florida,N.Y.L.J., Feb. 14, 2005, at s5 (advising New York lawyers
ofthe steps needed for clients to change domicile to Florida, but also warning that assisting clients in
this manner could constitute unlicensed practice of Florida law).
266. Kaplan, supra note 25, at 28, 35.
267. Except, instead of numbering only a few, they now number about half of the states. See
supranotes 8, 35.
continuum. By regaining historical perspective, we can appreciate the true
magnitude of the challenges facing modem state death taxation.
Interstate competition is a powerful destructive force, harnessed over a
period of eighty years but then released to reshape the death tax landscape.
Confronting this force, modem state leaders may hold firm, touting
decoupled twenty-first century estate taxes as a mere continuation of
twentieth century death tax policy. Alternatively, and more likely, they may
simply yield to competitive pressures, deciding that state death taxes are too
controversial-and potentially too self-defeating-to warrant continuation.
If state leaders make this choice, and history suggests they will, then
state death taxes will continue on what had once seemed their inevitable
course. State leaders will abandon this traditional source of revenue in favor
of others. Burdens will shift. Some taxpayers will lose while others will
gain. Amid the clamor and complaints of those impacted by the resulting
new tax, the long history of state death taxes will head towards a quiet end.
3. Editorial , Estates ofPain, WALL ST. J., Aug. 1 , 2005 , at A8 . 8. In 1916, no state death taxes were imposed in Alabama, District of Columbia, Florida,
Death Taxes , 26 IOWA L. REV. 451 , 468 ( 1941 ) (footnotes omitted). 9. During this period, new state death taxes were imposed by Mississippi (in 1918 ), New
Mexico (in 1919 ), and South Carolina (in 1922 ), leaving Alabama, Florida, and the District of
Columbia as the three jurisdictions not imposing a death tax in 1924 . Id. 10. ANALYSIS STAFF , TAX DIVISION , U.S. TREASURY DEP'T, OVERLAPPING TAXES IN THE
UNITED STATES 20 tbl.7 ( 1954 ) [hereinafter OVERLAPPING TAXES] . 11. Id. at 21 tb.7 . 12. Although the actual amount of revenue created by the state death taxes had increased during
See id . at 20-21 tbl.7 . 13. The impact of interstate competition on state laws has been studied extensively in other
The Desirable Limits on State Competition in CorporateLaw , 105 HARV. L. REV. 1437 ( 1992 )
Law: Reflections Upon Delaware , 83 YALE L.J. 663 , 666 ( 1974 ) (using the term "race to the 40. An Act Laying Duties on Stamped Vellum, Parchment , and Paper, ch. 11 , 1 Stat. 527 ( 1797 ). 41. DESCRIPTION AND ANALYSIS, supra note 38, at 10-11. 42. Id. 43. WEST, supra note 37 , at 88 . 44. An Act to Repeal the Internal Taxes , § 1 , 2 Stat. 148 , 148 ( 1802 ). 45 . An Act to Provide Internal Revenue to Support the Government and to Pay Interest on the
Public Debt , § 110 , 12 Stat. 432 , 483 ( 1862 ). 46 . An Act to Provide Wages and Means for the Support of the Government, and for Other
Purposes , § 1 , 13 Stat . 218 , 218 ( 1864 ). 47 . An Act to Provide Internal Revenue to Support of the Government, to Pay Interest on the
Public Debt , and for Other Purposes, § 126 , 13 Stat. 223 , 285 - 91 ( 1864 ). 48. WEST, supra note 37, at 91 . 49. Id.at 90 . 50. An Act to Reduce Internal Taxes, and for Other Purposes, § 1 , 16 Stat . 256 , 256 ( 1870 ). 51 . An Act to Reduce Duties on Imports, and to Reduce Internal Taxes, and for Other Purposes,
§ 36 , 17 Stat. 231 , 256 ( 1872 ). 52 . An Act to Provide Ways and Means to Meet War Expenditures, and for Other Purposes, §
29 , 30 Stat. 448 , 464 - 65 ( 1898 ). 53 . See id. 54 . An Act to Repeal War-Revenue Taxation, and for Other Purposes , Pub. L. No. 57 - 67 , ch.
500 , 32 Stat. 96 , 96 ( 1902 ). 67 . See Oakes, supra note 8 , at 455-68 ( providing a historical overview of the early history of
state death taxes); see also WEST, supra note 37 (providing an exhaustive, state-by-state treatment of
the same subject) . 68 . See WEST , supra note 37, at 97-98 ( noting that the Pennsylvania Act "ha[d] directly or
then quoting the first section of the Act) . 69 . Id . 70 . See Oakes, supra note 8 , at 452- 54 . 71 . For example, Max West, writing in 1908, observed: "The New York inheritance tax was first
imposed in 1885, but amendments of greater or less importance have been made at nearly every
subsequent session of the legislature . " WEST, supra note 37 , at 126 (footnote omitted).
from 1848 and 1867. Id.at 113 . 72. For example, Massachusetts imposed a death tax in 1841 and repealed it in 1843. Id. at 131.
Alabama's 1848 death tax was repealed in 1868. Id. Wisconsin's 1868 death tax was repealed in
1872. Id. at 115; see also Oakes, supra note 8 , at 453-54 (detailing the repeal of state death taxes in
several states between 1866 and 1885) . 73 . While nine states imposed death taxes in 1891, that number increased to forty-three by 1916 .
MAXWELL , supranote 15 , at 332 . 82. Max Oliver Cogburn , The CreditAllowable Against the Basic FederalEstate Tax for Death
Some SuggestedSolutions , 30 N.C. L. REv. 123 , 123 ( 1952 ). 170 . Id . The nine states were California , Colorado, Delaware, Maine, Missouri, Montana, North
Carolina , Ohio, and Vermont . Id. Pennsylvania also modified its 1925 pick-up tax . Id. 171. Id. at 280 . As discussed more fully in Part IV.C, Perkins observed that the "large majority of
the states" in this era utilized both a state inheritance tax and a pick-up tax . Id. at 281 . The tax
payable by a given estate was the larger of the two . See id. 172 . SUBCOMM. OF THE COMM . ON WAYS AND MEANS, 72D CONG ., DOUBLE TAXATION 132
(preliminary report) (Comm. Print 1933 ) [hereinafter DOUBLE TAXATION] . As a percentage of total
state revenues, death taxes rose from 7.9% of state revenues in 1915 to 10.1% in 1930 . Id. This
increase in various types of state taxes . 175 . 67 CONG. REC. 639 , 676 ( 1925 ) (statement of Rep . Green). 176 . Florida argued that the state death tax credit violated not only the United States Constitution,
Allowed to File Bill of Complaint at 35 , 37, Florida v. Mellon , 273 U.S. 12 ( 1926 ) (no docket