State Senate goes down to the wire on estate tax

Legislators finally compromise on long-discussed bill to treat couples, singles equally without losing revenue for state.
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Sen. Rodney Tom

Legislators finally compromise on long-discussed bill to treat couples, singles equally without losing revenue for state.

The Legislature played so close to the deadline on a tax measure that it came down to this: A state revenue department employee was scheduled to be at a post office at 8 a.m. today with a cell phone and 10 envelopes.

If that person received no phone call by then to say that Gov. Jay Inslee had signed a modified House Bill 2075, he or she was supposed to mail 10 refund checks on estate taxes worth about $13 million — a drop in revenue for the 2013-2015 operating budget being fought over in the state Legislature. That's because a judge has required that the state fix a tax law glitch prior to a 9 a.m. hearing today in Thurston County Superior Court. That $13 million would have grown quickly to a $160 million loss in revenue for 2013-2015.

That phone call was being made, however. Inslee signed the bill shortly after midnight this morning.

Democratic-controlled House approving it 53-33, mostly along party lines on Thursday morning. The Senate passed the bill 30-19 shortly after 11:30 p.m. Today's 8 a.m. target was the first deadline that would have passed in which the state would have lost money if a bill was not passed. 

It was obvious deals were made during the day. The Senate Majority Coalition Caucus held off voting on the estate tax bill until the House voted on a compromise bill on revamping the Model Toxics Control Act. Also, four Senate Republicans held off voting "no" on the House estate tax bill until they were sure enough Majority Coalition Caucus members crossed the aisle to ensure that the estate tax bill would pass the Senate.

Joining the 24 members of the Democratic minority caucus to pass the estate tax revision were Sens. Rodney Tom, D-Medina, Bruce Dammeier, R- Puyallup, Andy Hill R-Redmond, Steve Litzow, R-Mercer Island, Jon Braun, R-Centralia, and Joe Fain, R-Auburn.

The compromise means that the 2013-2015 budget — currently being negotiated — won't lose $160 million in revenue for the upcoming biennium that it would have had if the Thurston County lawsuit had not occurred. "This was a $160 million bogey handed to us after we got here," said Sen. James Hargrove, D-Hoquiam.

The Senate's Majority Coalition Caucus views the compromise as a tax increase. The House Democrats view it as fixing a glitch in a 2005 law that inadvertently allowed the estates of married couples to be exempt from estate taxes, while single people's estates must still pay that tax. That wrinkle surfaced in a recent Thurston County court case. Friday's $13 million would have been the first refunds provided if the law is not changed.

Seventy-one families — dealing with estates in excess of $2 million each — would have become eligible for refunds. Estates of less than $2 million are currently exempt from that tax.

Washington has roughly 50,000 deaths annually, with 250 to 300 involving estates worth $2 million or more, said Rep. Reuven Carlyle, D-Seattle and one of the House's chief budget negotiators.

Both the Republican-oriented Senate and the Democratic-controlled House had proposed fixes to the situation. The Senate majority coalition of 23 Republicans and two Democrats had wanted the exemption threshold increased to $5 million. But House Democrats turned down that plank, and the compromise kept the threshold at $2 million. Meanwhile, the Democrats agreed to a $2.5 million exemption threshold for the estates of small family-owned businesses. Some tweaks in the upper levels of the estate tax rates are also in the compromise bill. 

"This is in no way a tax increase," Carlyle said, describing the measure as a technical fix.

Tom, who voted "no" on the estate tax in 2005, said: "I do think it was very clear when we passed the bill that our intent wasn't have to have couples and singles (in separate tax categories). ... We need to make sure this $160 million goes to education."

Rep. Terry Nealey, R-Dayton, said: "The changes in the bill do help small businesses. ... But I have very grave concerns about this bill being retroactive (and nullifying existing refunds). ... I think we're on the borderline of unconstitutionality if this bill passes."

"If this passes, we're going to be sued," said Rep. Matt Shea, R-Spokane Valley. Several Republican senators echoed those concerns.

The House Republicans' chief budget writer, Rep. Gary Alexander of Olympia, cast one of the few GOP votes for the bill in the House, saying: "We're going to have to have some give-and-take in reaching a budget."

Carlyle said chances favor the likelihood of a legal challenge to the retroactive aspect of the bill. "The question of retroactivity is a legitimate philosophical and legal question," he said.

Fain, Litzow, Tom and Hill said the preserved $160 million ensures that the Senate proposal of appropriating $1 billion to Supreme Court-mandated educational improvements can occur without closing additional tax exemptions or raising taxes. "We've got enough revenue now to go home," Litzow said.

Inslee and the Democrats disagree, contending the Senate's proposed budget cuts too much in health and social services — and that the Senate needs to pass a House bill to close six additional tax exemptions totaling $208 million to ensure the Supreme Court mandate is met without crippling social and health services.

“Now that we have gotten over this hurdle, lawmakers need to shift their focus to approving a sound budget that helps us meet our constitutional obligation to fund basic education. We need to see compromise and good-faith negotiations on the operating, capital and transportation budgets that must be passed,” Inslee said

Also late Thursday evening, the Senate:

  • Approved 26-22 a bill to upgrade the teaching of reading in grades K-3. Sen. Brian Hatfield, D-Raymond, crossed the aisle to join the Majority Coalition Caucus. During the Legislature's regular session, the House Democrats took out a part in which third graders could be held back if they cannot read at a certain level, which was the main plank of the Senate bill originally introduced by Sen. Bruce Dammeier, R-Puyallup. The majority coalition significantly tweaked the bill that came back from the House, and has sent it back to that chamber. The House plans to debate the revamped bill later.
  • Passed 35-13 a bill to revamp how money covered by the Model Toxics Control Act — commonly referred to as MTCA or "Motka." Minutes later, the House passed the same bill 67-18. This is one of the bills that the majority coalition wanted passed prior to resolving two chamber's budget deadlock.

The MTCA provides the state Ecology Department with $200 million to $300 million annually to study and clean up sites contaminated by hazardous substances. A hazardous substances tax helps fund the account, along with fines and fees. The MTCA fund has $283 million for 2013-2015.The MCTA account has been routinely raided to provide money for the state's general fund when legislators put together biennial operating budgets.

The bill revamps and pins down what specifically the MTCA money can be used for in the way of environmental cleanup with enough changes made from the bill's previous incarnation to attract some Senate Democratic support. "This is an excellent compromise. ... It will create thousands of jobs in Washington state, " said Sen. Kevin Ranker, D-Orcas Island, who was a leading opponent of the bill's previous incarnation. Advocates have said the program creates jobs by funding clean water and other environmentally oriented projects around the state. Sen. Doug Ericksen, R-Ferndale, said, "It cleans up more toxic sites in Washington faster. ... It will create accountability, it will create transparency on how we spend those environmental dollars in Washington."

For exclusive coverage of the state Legislature, check out Crosscut's Olympia 2013 page.


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About the Authors & Contributors

John Stang

John Stang

John Stang is a freelance writer who often covers state government and the environment. He can be reached on email at and on Twitter at @johnstang_8