Mark Sellner sat in Sarasota Springs, Fla., where it was 91 degrees and partly cloudy, with 56 percent humidity. There was a zero percent chance of state estate taxes.
In Plymouth, Minn., which he left less than a year ago, the temperature at the same time was 74, with sunny skies and 30 percent humidity. There was a 100 percent chance hundreds of Minnesotans’ estates will pay taxes.
For the Minnesota native, the Florida move was a matter of lifestyle. But, the certified public accountant said, clients have told him the estate tax in conjunction with state income tax helped convince them to move south where the tax climate is better, as is the weather.
No southern state collects estate or inheritance taxes, and just 18 states overall do.
Like his father said: “We didn’t move to Florida for the taxes, we moved because of the weather. The taxes are a bonus.”
State income taxes near 10 percent for the richest Minnesotans are getting the attention of more people. And when they think about their estates being taxed after they die, Sellner said, that helps convince many that a lower-tax locale would be a good move.
“I have never told anybody to move, but I have told them the consequences on the tax side,” Sellner said.
Minnesota’s Republican-led Legislature this year voted to increase the amount residents can leave heirs before the state collects an estate tax.
Existing state law requires taxes to be paid on an individual’s estate of more than $1.8 million. The new law bumps that up to $3 million for estates of people who die in 2020 and future years.
For small businesses and farms, the value is $5 million before taxes are collected.
Supporters of the increase say the state needs to retain the wealthy.
“The estate tax creates a strong financial disadvantage that is not imposed in most other states, including all our bordering states, and creates an unfortunate financial incentive for more affluent Minnesotans to relocate,” said Vice President Beth Strinden Kadoun of the Minnesota Chamber of Commerce. “Many of these individuals are tremendous supporters of their local communities so Minnesota will lose not only those great community assets but also tax revenue.”
The estate tax change is one reason Democratic Gov. Mark Dayton vetoed legislative branch funding. It was an attempt to force lawmakers back to a special legislative session, where he said he wanted to eliminate the estate tax change. The Republican-controlled Legislature took Dayton to court over the veto.
“The estate tax cut, which costs $109.3 million over the next four years, will mean that the wealthiest 1,000 estates in Minnesota each year will see a tax cut, significantly reducing the work we have done in Minnesota to make our tax
system more progressive,” Dayton wrote to lawmakers.
The situation is different for the 1,000 individuals than for small business owners and farmers who want to pass on their holdings to family.
Revenue Commissioner Cynthia Bauerly said only about 10 estates from farmers and small-business owners pay Minnesota estate taxes each year. A 2011 law removed the tax from many, she said.
“If my father dies and I am going to inherit the farm, and the farm is less than $5 million, I can take that farm and continue farming without paying the estate tax,” Bauerly said.
It does not take much for farms and small businesses to reach the $5 million level where they would be taxed.
For instance, a modern combine to harvest grain could cost $750,000, and it is just one of many pieces of equipment a farmer needs for a large operation.
President Gary Wertish of the Minnesota Farmers’ Union said land is a farmer’s biggest asset and its value can add up quickly. Three or four years ago, Renville County farms near where he lives could bring up to $14,000 an acre, he said. Even at much lower values, a farm easily could be worth $5 million in land alone.
“I would say it is common” to see $5 million farms, Wertish said, “but obviously there are a lot of farms under that.”
Wertish and Sellner said that with some financial planning, farmers and small-business owners can spare their heirs estate tax payments.
Sellner said smart business owners give parts of the business to heirs while still alive, leaving less — or nothing — to be taxed upon death.
A person must leave a farm or business to family members to avoid the estate tax.
In most cases, the executor files estate tax forms, Sellner said.
While few farm and small-business estates owe taxes, more than 1,000 individual estates pay the tax each year. That figure could drop to less than 250 once the lower limit for taxes rises to $3 million.
The state House tax chairman’s goal is to eliminate the estate tax entirely. Rep. Greg Davids, R-Preston, said people already paid taxes on their property, so heirs should not be forced to pay again, at a rate of up to 16 percent.
“It is just wrong to be taking away from families what they have earned.”
Davids may be working on eventually eliminating the state estate tax, but a federal tax likely will continue, although there are regular attempts to eliminate it.
The lawmaker earns a living as an insurance agent, and works on financial planning as part of that. He said he may call a client for an annual financial checkup only to find they have moved to Florida, Texas or other southern state. Minnesota’s high taxes are part of the reason, he said.
Some, he said, “could save $100,000 (in tax bills) by getting out of town.”