Washington House Democrats

Linville proposes estate tax exemption for family businesses

February 23, 2007

Whatcom County Rep. Kelli Linville (D-Bellingham) has offered a bill to deduct the value of family-owned business interests from the estate tax when the business is being passed down to a family member. The plan was heard today in the House Finance committee.

The estate tax in Washington, reformed in 2005, affects fewer persons than the previous law – it only applies to estates valued at $2 million or more. A deduction is allowed for family farms. Revenues are deposited in the Education Legacy Trust Account to fund: smaller classroom sizes, new enrollments at the state’s colleges and universities, financial aid for college students, and other education improvements.

“When we passed estate tax, I supported the purpose of the money. We worked hard to protect family farms, and I want to work hard to protect family-owned businesses,” said Linville during her testimony in the committee hearing this morning.

“Because I treated small farms as small businesses as chair of the Agriculture Committee last year, I would like to treat all family businesses the same way when it comes to the estate tax,” said Linville. “Small family-owned businesses often have capital investments. That’s not the same as cash flow, and losing those could cause families to lose their business.”

Under Linville’s proposal, the value of family owned business interests would be deducted from the estate tax when acquired by a family member. An additional deduction cannot be taken for property allowed a deduction as farm property.

Family-owned business interests qualified for the deduction include:

- an interest in a trade or business carried on as a proprietorship;

- an interest in a business entity if at least 50 percent is owned by the decedent and members of the decedent’s family;

- or an interest in a business entity where 70 percent is owned by members of two families or 90 percent is owned by members of three families and at least 30 percent of the business is owned by the decedent and members of the decedent’s family.

The family business exemption would cost the state between $4.4 and $5.3 million a year, but Linville said keeping small family-owned businesses in the state could offset the cost. She also proposed tightening the requirements to make sure the exemption was truly applied to small, family-owned firms that are at risk.

“I’m pleased this bill was heard, and I will continue improving the opportunities for family businesses,” she said.

# # #

Information:

House Bill 1884: http://apps.leg.wa.gov/billinfo/summary.aspx?year=2007&bill=1884 

Staff: Larry Clark, 360.786.7214, Clark.Larry@leg.wa.gov