Does Alabama have an estate tax? The answer is no, currently Alabama doesn't collect a state estate tax, although things were different a few years ago before major changes took effect with regard to federal estate tax laws. So what do federal estate tax laws have to do with Alabama estate taxes? Prior to January 1, 2005, Alabama collected a separate state estate tax, called a "pick up tax," that was actually equal to a portion of the overall federal estate tax bill.
Effective January 1, 2005, the pick up tax was officially phased out under the provisions of the Economic Growth and Tax Relief Reconciliation Act ("EGTRRA"). In response to the changes in federal law that phased out the pick up tax, some states that used to collect a pick up tax chose to enact laws that allow the state to still collect a state estate tax. But Alabama, like 32 other states, did nothing and as a result Alabama no longer collects a state estate tax. In fact, Alabama - like Florida and Nevada - would require a constitutional amendment to allow the state to enact a separate state estate tax.
So is it possible for the pick up tax, and therefore Alabama estate taxes, to come back? Yes, since currently the federal estate is scheduled to completely disappear in 2010 and then it, along with the state pick up tax, are scheduled to come back in 2011 due to the sunset of EGTRRA. But no one really believes that Congress and President Obama will allow EGTRRA to sunset. Instead, it is anticipated that at the very least a two or three year patch will be enacted that will keep the federal estate tax in place and possibly bring back the pick up tax, which has already been proposed by H.R. 2023, introduced by Rep. Jim McDermott (D-WA) in April 2009.
For more on Alabama estate taxes, refer to Does Alabama Collect an Estate Tax?
- Understanding Death, Estate and Inheritance Taxes
- What is the Pick Up Tax?
- What About the 33 States That Don't Collect a State Estate Tax?
- Alabama Estate Tax Filings No Longer Required
- Legal Opinion - Alabama Estate Tax
- What is the Future of the Federal Estate Tax?
- Estate Tax Repeal Update - Predictions About the New Law