Tag Archives: gift

Gift Tax Repeal a Gift for Haslam Family

A bill repealing the state gift tax is expected to put more money in some Tennesseans’ pockets including those of one highly recognizable taxpayer, Gov. Bill Haslam.
Marc Perrusquia explains:
The super wealthy businessman-turned-politician gave his tacit approval this spring as fellow Republicans pushed the bill through the General Assembly. Passed by the House and Senate on the final two days of the session, it now goes to Haslam, who’s expected to sign it.
The new law, which eliminates the 5.5- to 16-percent graduated tax on gifts, could create a windfall for Haslam, whose family owns Pilot Flying J, a nationwide chain of convenience stores and truck stops ranked as one of the most lucrative private companies in the country.
Haslam transfers Pilot stock to his three grown children, but to avoid gift taxes he sells those shares rather than give them away. The arrangement, which generates about $1.1 million a year in income to Haslam, costs less in income taxes than it would to pay gift tax by giving shares to his kids, Haslam’s CPA, J. Todd Ellis, said in a 2010 interview.
While the cuts may be good for well-off individuals such as Haslam, some Democrats argue they are bad for the state. Eliminating the gift tax will cost Tennessee $15 million a year in revenue while a related measure passed this session — the phasing out of the inheritance tax by 2016 — will cost the state another $94 million a year.
“I didn’t see a need to give up that (gift tax) revenue,” said Sen. Douglas Henry, D-Nashville, one of three senators and 10 representatives — all Democrats — who voted against eliminating the gift tax.
Rep. Charles Michael Sargent, R-Franklin, sponsor of both bills in the House, said although the measures will cost the state revenue, lower taxes will help the economy by increasing consumer and business spending power.
“This is just another way we’re looking at reducing taxes in the state of Tennessee,” Sargent said. “Republicans just believe this is the way to go. It brings in more business, which in turn brings in more revenue.”
Haslam did not agree to an interview for this story.
The governor’s spokeswoman, Alexia Poe, said in an e-mail that eliminating the gift tax “wasn’t part of his legislative agenda this year,” yet “he is comfortable” with the decision. Haslam proposed raising exemptions to the inheritance tax before legislators moved to phase it out altogether.
“Federal tax policy drives financial planning and estate planning decisions. The main impact of state tax policy on those decisions is where people are going to live,” Poe said. “The governor doesn’t consider living anywhere else but Tennessee, so the elimination of the gift tax here won’t impact his planning decisions.”
Nonetheless, he should benefit from the tax cuts.
…The law change eliminates any “transfer by gift” made after Jan. 1, 2012.
Previously, the state charged taxes of any gift greater than $13,000 per tax year if the gift was made to an immediate family member including a spouse, child or sibling. Taxes were charged on gifts greater than $3,000 if the gift was made to someone other than an immediate relative.
Ellis, Haslam’s CPA, explained in a 2010 interview that Haslam employs a sophisticated mechanism to avoid gift taxes when transferring Pilot stock to his children, Will, Annie and Leigh.
Under the arrangement, Haslam sells stock to trust funds set up for the benefit of each child. Haslam holds a loan note to finance the sales. Each of the three trusts pays Haslam $358,000 a year through an amortized schedule to finance the stock sales, Ellis said. The CPA said at the time income taxes on the transactions were less than gift taxes Haslam would have paid if he’d given the shares away, yet he provided no additional details.
Bucking a long tradition among gubernatorial candidates, Haslam declined to release tax returns that might detail the arrangement and other financial transactions.
Under the state’s now-repealed gift tax, a $300,000 gift to a relative could have cost $26,000 in state gift taxes alone. Any federal gift taxes would come on top of that.
But by selling stock to his children Haslam could have minimized taxes, said Taylor, a partner at Pelletier, Chase & Associates in Portland, Maine, where she is a business and tax adviser. That’s because only the profit — or the capital gain — is taxed in a stock sale. Haslam could further limit gift taxes by giving the stock sale a low value, limiting his gain, Taylor said
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Gift Tax Repeal Goes to Governor

Legislation repealing Tennessee’s gift tax has been sent to Gov. Bill Haslam, who has endorsed the idea and adjusted his state budget plan to cover the anticipated $15 million per year in lost revenue.
The bill (SB2777) was approved 30-3 in the Senate Monday evening. The House approved it 79-10 Tuesday. The final version makes repeal retroactive to Jan. 1, 2012, which House Finance Committee Chairman Charles Sargent said could mean a refund for anyone who has paid the tax this year – though most wouldn’t file 2012 taxes until next year.
Sponsors said Tennessee is one of the last state’s to retain a stand-alone tax on gifts. Sargent, R-Franklin, said only Connecticut will still have such a levy once the bill is signed into law.
The current law has a $13,000 exemption. The tax rate applies to gifts above that value at a rate ranging from 5.5 percent to 16 percent; the bigger the gift, the higher the rate.
Senate Finance Committee Chairman Randy McNally, R-Oak Ridge, who sponsored the bill in the Senate, said that “an astute tax practitioner” can legally avoid the tax as it stands now so that it has been “primarily a trap for the unwary.”
Also, McNally said that the gift tax was initially imposed to capture revenue from wealthy persons transferring funds to avoid paying or reduce inheritance taxes that would follow their deaths.
Legislation passed earlier – also sponsored by McNally and Sargent — will repeal the state’s inheritance tax in stages with full elimination of the levy on Jan. 1, 2016.

Haslam OK on Cutting Gift Tax

Gov. Bill Haslam says he may go along with GOP lawmakers’ effort to eliminate the state’s tax on gifts, according to Andy Sher.
“I think there are a lot of things to be worked out here in the last couple of weeks,” the Republican governor told reporters Wednesday. “I think it’s something that all of us look at.” Haslam noted that Tennessee and Connecticut are the only states that apply taxes to large gifts.
“And we’re not typically in Connecticut’s neighborhood when it comes to tax policy,” Haslam said. “So I think all of us can say that’s probably not something that Tennessee wants to have.”
House Speaker Beth Harwell, R-Nashville, and House Finance Chairman Charles Sargent, R-Franklin, have a bill to eliminate the gift tax. The tax currently applies graduated taxes from 5.5 percent to 16 percent on gifts to family members of $13,000 or more. The tax affects gifts to people other than family member’s gifts to others of $3,000 or more. Eliminating the tax would result in a $14.9 million annual revenue loss to the state.

Laffler Tells Legislators: Repeal Gift Tax for ‘Creme de la Creme’

Economist Arthur Laffer urged Tennessee lawmakers on Monday to follow up repeal of the state inheritance tax — a bill that has already assured of passage — with a cut to the state’s tax on gifts, which he said curbs economic growth.
From Chas Sisk’s report:
Laffer told the legislature’s Joint Fiscal Review Committee that the state’s gift tax should be eliminated immediately. The Nashville-based economist has been pushing for repeal of Tennessee’s estate and gift taxes, which he says cause rich retirees to move to states where they can pass on their wealth to heirs tax-free.
“Tennessee’s performance has been very poor, and the reason it’s been poor in my view … is because of the gift and estate tax,” he said. “You’re taking that very small group of people, the crème de la crème of the job creators, and forcing them to leave. By doing that, you’ve really held down the growth rate.”
….Laffer told lawmakers Monday that they should continue with repeal of Tennessee’s gift tax, which kicks in whenever a Tennessee resident gives a family member goods and cash worth more than $13,000 in a year or a nonrelative more than $3,000. The tax starts at 5.5 percent, tops out at 16 percent, and brings in about $15 million a year.
House Finance Committee Chairman Charles Sargent, who has filed legislation to repeal the gift tax, indicated he would like to pursue the idea. Speaking as if a gift-tax repeal were a foregone conclusion, Sargent, R-Franklin, asked Laffer when the state would see the benefit.