Why is Washington Estate Tax Not Indexed to Inflation
Washington state has the highest state estate tax in the country and for several years it was indexed to inflation. We go over why it is not now.
My friend Chris Hesse (and partner while at CLA) reached out to me yesterday with an interesting issue dealing with the Washington State estate tax. There had been a $2 million exemption that was indexed to inflation starting in the mid-2000s.
The inflation adjustment was based on a Department of Labor consumer price index for Seattle-Tacoma-Bremerton. However, in 2018 this index was eliminated and replaced with the Seattle-Tacoma-Bellevue index. This froze the exemption at the current $2.193 million level. Since the law specifically identified the original index when that was eliminated, no “indexing” of inflation could occur. At least according to the Washington State Department of Revenue.
No one in the Washington Senate or House has presented a bill (at least to our knowledge) to fix this and the original bill should have included appropriate language to prevent this. Any time you reference any type of index you need to include language dealing with cases of the index changing or being eliminated.
We are hoping steps will be taken to correct this error and provide refunds to taxpayers who have paid too much tax. Based on the current index, the exemption for 2023 should be approximately $2,675,000 or an increase of $482,000. The maximum estate rate in Washington is 20%, therefore an estate may actually pay an extra $96,400 of estate tax that is “legally” not owed.
This needs to be corrected and we encourage a legislator to provide a bill in the next session to fix this retroactively and provide rules to help the Department of Revenue to automatically issue refunds. There is no reason for anyone to have to file an amended return when this issue was caused by the state and not by the taxpayer.
We will keep you posted.
Hello Paul,
Larry Heikel here. I am a retired CPA. Thank you for this article. I had discovered the same issue this summer, while reviewing our personal wills and the Federal / State exemptions. I also had contact with the DOR, and I was disappointed that no one had made the effort at the DOR or Legislature to recognize the change in the Federal BLS CPA index.
Since that time, I have organized a grass roots effort among family & friends & industry groups to contact their legislators.
In August 2024, I contacted the office of Wa. St. Rep. Jim Walsh. He is the House Majority leader for the GOP. His office confirmed they will draft a bill in the upcoming session. And they will get back to me in December with their bill number and committees. I will keep you posted.
Last, if OK with you, I would like to share your 3/23/2023 posting within my grass roots effort. I look forward to your reply.
Sincerely,
Larry Heikel, CPA-retired
East Wenatchee, WA. 98802
Good article. You should send your article to the Washington Senate and House!