The Pennsylvania Legislature is considering a bill that would exempt small businesses from the inheritance tax, but the proposed law doesn't go far enough.
Inheritance tax is a state levy that applies on estates passed down from one family member to another. Inheritance tax rates can be anywhere from 4.5 percent to 15 percent, depending on the heir's relationship to the deceased. The tax applies to assets, including equipment, meaning a business worth $1 million would have a tax bill of tens of thousands of dollars, regardless of its profits.
The bill passed the House Finance Committee on Tuesday. Last year the Legislature passed an inheritance tax exemption for family farms with bipartisan support. The idea behind an exemption is that businesses would be able to stay in the family after the owner's death. Businesses are now faced with the reality of selling off assets, reorganization, dipping into savings or closing down altogether to pay an inheritance tax bill.
People in favor of the inheritance tax exemption argue that the exemption would allow businesses to stay open and keep contributing to the economy. Those opposed to the exemption point to the Department of Revenue's estimate of a loss of $9.9 million in fiscal year 2013-14 alone.
The legislation should be expanded to include home ownership that children inherit from their parents if at least one child continues to reside in that home. Those who are trying to stay in Pennsylvania should not be penalized for staying in the family home. More inheritance tax exemptions are needed.