As part of his proposed budget presented to the General Assembly last week, Governor Lamont proposed the elimination of the Connecticut gift tax. Presently, and as noted in the Governor’s budget proposal, Connecticut is the only state with a gift tax. The Governor’s proposal would eliminate imposition of the gift tax but provide for a three-year look back period to identify and prevent gifts made in contemplation of death, essentially providing a back-stop to the Connecticut estate tax. The cost of repeal of the Connecticut gift tax is estimated to be $9 million in fiscal years 2020 and 2021. The Governor’s budget would also change the filing deadline, and accompanying payment of Connecticut estate tax, for Connecticut estate tax returns from 6 to 9 months to comport with the federal estate tax filing deadline. Both changes would be effective as of January 1st of this year.
Repeal of the Connecticut gift tax as well as repeal of the Connecticut estate tax have been topics discussed in each session of the Connecticut General Assembly for at least a decade. While Connecticut is the only state with a gift tax, at least 17 other states, plus the District of Columbia, impose an estate or inheritance tax, including the neighboring states of Massachusetts, New York and Rhode Island. During each legislative session over the last several years, Connecticut legislators have proposed bills that would increase the gift and estate tax exemptions or eliminate the gift and estate taxes altogether. The legislative increases in the exemptions passed in 2017 and 2018 sessions, mean that fewer taxpayers will be subject to these taxes. Specifically, as noted in a prior blog post, the exemption from the Connecticut estate and gift taxes is currently $3.6 million per person and is scheduled to increase over the next several years until it meets the federal estate tax exemption amount (currently $11.4 million). The increase in the Connecticut exemption amounts are expected to result in an accompanying decrease in revenue to Connecticut from approximately $223 million in 2018 (when the exemption amount was $2.6 million) to $155 million in 2020 when the exemption amount will be $5.1 million.
Even after these increases in the Connecticut exemptions, efforts to repeal Connecticut’s gift and estate taxes continue. While the Governor’s budget calls for repeal of only the gift tax, not the estate tax, at this point in the 2019 session, legislators have already proposed at least 11 different bills proposing repeal of the Connecticut estate tax. While at this stage in the session the bills are short on specifics, some of the bills propose immediate repeal (HB 6036 and HB 6462) and others propose a phase-out of the estate tax over time (HB 5095). These bills may gain more traction this year given that some Democrats in the General Assembly have joined in the calls for repeal of the Connecticut estate tax. In particular, Democrats from Fairfield County have expressed their support for repeal of the Connecticut estate and gift taxes, while other Democratic legislators have indicated that they might support repeal if such repeal was tied to other tax measures such as a more progressive state income tax. We will continue to monitor the prospects for repeal as the 2019 legislative session progresses.