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PRINTER'S NO. 1203
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
1148
Session of
2021
INTRODUCED BY GAYDOS, ROTHMAN, KEEFER, GROVE, BOBACK, ECKER,
KAUFFMAN, R. MACKENZIE, JOZWIAK, MARSHALL, RYAN AND MOUL,
APRIL 8, 2021
REFERRED TO COMMITTEE ON FINANCE, APRIL 8, 2021
AN ACT
Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
act relating to tax reform and State taxation by codifying
and enumerating certain subjects of taxation and imposing
taxes thereon; providing procedures for the payment,
collection, administration and enforcement thereof; providing
for tax credits in certain cases; conferring powers and
imposing duties upon the Department of Revenue, certain
employers, fiduciaries, individuals, persons, corporations
and other entities; prescribing crimes, offenses and
penalties," repealing provisions relating to inheritance tax;
in procedure and administration, further providing for
petition for reassessment; and, in governmental obligations,
further providing for taxability of government obligations.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Article XXI of the act of March 4, 1971 (P.L.6,
No.2), known as the Tax Reform Code of 1971, is repealed:
[ARTICLE XXI
INHERITANCE TAX
PART I
PRELIMINARY PROVISIONS
Section 2101. Short Title.--This article shall be known and
may be cited as the "Inheritance and Estate Tax Act."
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Section 2102. Definitions.--The following words, terms and
phrases, when used in this article, shall have the meanings
ascribed to them in this section, except where the context
clearly indicates a different meaning:
"Adverse interest." A substantial beneficial interest in the
property transferred which might be adversely affected by the
exercise or nonexercise of the power or right reserved or
possessed by the transferor.
"Business of agriculture." The term shall include the
leasing to members of the same family or the leasing to a
corporation or association owned by members of the same family
of property which is directly and principally used for
agricultural purposes. The business of agriculture shall not be
deemed to include:
(1) recreational activities such as, but not limited to,
hunting, fishing, camping, skiing, show competition or racing;
(2) the raising, breeding or training of game animals or
game birds, fish, cats, dogs or pets or animals intended for use
in sporting or recreational activities;
(3) fur farming;
(4) stockyard and slaughterhouse operations; or
(5) manufacturing or processing operations of any kind.
"Children." Includes natural children whether or not they
have been adopted by others, adopted children and stepchildren.
"Clerk." The clerk of the orphans' court division of the
court of common pleas having jurisdiction.
"Court." The orphans' court division of the court of common
pleas of:
(1) The county in which the decedent resided at the time of
his death.
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(2) The county in which letters, if any, are granted if the
decedent was a nonresident of this Commonwealth.
(3) Dauphin County in all other cases.
"Date of death." The date of actual death or, in the case of
a presumed decedent, the date found by the final decree to be
the date of the absentee's presumed death. For the purpose of
determining interest and discount, "date of death" means the
date upon which the court enters its final decree of presumptive
death.
"Death taxes." Includes inheritance, succession, transfer
and estate taxes and any other taxes levied against the estate
of a decedent by reason of his death.
"Decedent" or "transferor." Any person by or from whom a
transfer is made and includes any testator, intestate, grantor,
settlor, bargainor, vendor, assignor, donor, joint tenant and
insured.
"Department." The Department of Revenue of the Commonwealth.
"Exemption income." All moneys or property, including,
without limitation, interest, gains or income derived from
obligations which are statutorily free from State or local
taxation under any other Federal or State laws, received of
whatever nature and from whatever source derived.
"Financial institution." A bank, a national banking
association, a bank and trust company, a trust company, a
savings and loan association, a building and loan association, a
mutual savings bank, a credit union, a savings bank and a
company that rents safe deposit boxes.
"Future interest." Includes a successive life interest and a
successive interest for a term certain.
"Lineal descendants." All children of the natural parents
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and their descendants, whether or not they have been adopted by
others, adopted descendants and their descendants and
stepdescendants.
"Members of the same family." Any individual, such
individual's brothers and sisters, the brothers and sisters of
such individual's parents and grandparents, the ancestors and
lineal descendents of any of the foregoing, a spouse of any of
the foregoing and the estate of any of the foregoing.
Individuals related by the half blood or legal adoption shall be
treated as if they were related by the whole blood. For a
transfer made by a surviving spouse, the term shall include any
individual considered to be a member of the same family of the
decedent spouse.
"Notice." Written notice.
"Presumed decedent." A person found to be presumptively dead
under the provisions of 20 Pa.C.S. Ch. 57 (relating to absentees
and presumed decedents) or, if a nonresident of this
Commonwealth, under the laws of his domicile.
"Property" or "estate." Includes the following:
(1) All real property and all tangible personal property of
a resident decedent or transferor having its situs in this
Commonwealth.
(2) All intangible personal property of a resident decedent
or transferor.
(3) All real property and all tangible personal property of
a resident decedent having its situs outside this Commonwealth,
which the decedent had contracted to sell, provided the
jurisdiction in which the property has its situs does not
subject it to death tax.
(4) All real property and all tangible personal property of
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a nonresident decedent or transferor having its situs in this
Commonwealth, including property held in trust.
(5) A liquor license issued by the Commonwealth.
"Register." The register of wills having jurisdiction to
grant letters testamentary or of administration in the estate of
the decedent or transferor.
"Safe deposit box of a decedent." A safe deposit box in a
financial institution located within this Commonwealth in the
name of the decedent alone or in the names of the decedent and
one or more persons other than the spouse of the decedent.
"Secretary." The Secretary of Revenue of the Commonwealth.
"Sibling." An individual who has at least one parent in
common with the decedent, whether by blood or by adoption.
"Territory." Includes the District of Columbia and all
possessions of the United States.
"Transfer." Includes the passage of ownership of property,
or interest in property or income from property, in possession
or enjoyment, present or future, in trust or otherwise.
"Transferee." Any person to whom a transfer is made and
includes any legatee, devisee, heir, next of kin, grantee,
beneficiary, vendee, assignee, donee, surviving joint tenant and
insurance beneficiary.
"Transfer of property for the sole use." A transfer to or
for the use of a transferee if, during the transferee's
lifetime, the transferee is entitled to all income and principal
distributions from the property and no person, including the
transferee, possesses an inter vivos power of appointment over
the property.
"Value." The price at which the property would be sold by a
willing seller, not compelled to sell, to a willing buyer, not
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compelled to buy, both of whom have reasonable knowledge of the
relevant facts. In determining the value of property, no
reduction shall be made on account of income, excise or other
taxes which may become payable subsequent to the valuation date
by the transferee or out of the property. Value as to land in
agricultural use, agricultural reserve or forest reserve means
the value which the land has for its particular use according to
the standards provided in section 2122.
Section 2103. Powers of Department.--(a) The department may
adopt and enforce rules and regulations for the just
administration of this article.
(b) The department shall have complete supervision of the
making of appraisements, the allowance of deductions and the
assessment of tax, including, but not limited to, the power to
regulate the actions of registers in the allowance and
disallowance of deductions and assessment of tax. The
department's supervision of the making of appraisements includes
the employment and compensation of investigators, appraisers and
expert appraisers. The compensation of investigators, appraisers
and expert appraisers shall be paid from the inheritance tax
collections in the respective counties.
(c) The department shall, in the event that the register
fails to take the necessary proceedings in connection with the
appraisement, allowance of deductions, assessment of tax or
collection of tax, have all the powers vested in the register in
this article and, at its option, may take the necessary action
and shall charge to the register and deduct from any commissions
or fees otherwise due him all costs and expenses incurred by the
department in connection with the proceedings.
PART II
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TRANSFERS SUBJECT TO TAX
Section 2106. Imposition of Tax.--An inheritance tax for the
use of the Commonwealth is imposed upon every transfer subject
to tax under this article at the rates specified in section
2116.
Section 2107. Transfers Subject to Tax.--(a) The transfers
enumerated in this section are subject to the tax imposed by
section 2106.
(b) All transfers of property by will, by the intestate laws
of this Commonwealth or, in the case of a transfer from a
nonresident, by the laws of succession of another jurisdiction
are subject to tax. The transfer of property of a person
determined by decree of a court of competent jurisdiction to be
a presumed decedent is subject to tax within the meaning of this
section and section 2108.
(c) (1) All transfers of property specified in subclauses
(3) through (7) which are made by a resident or a nonresident
during his lifetime are subject to tax to the extent that they
are made without valuable and adequate consideration in money or
money's worth at the time of transfer.
(2) When the decedent retained or reserved an interest or
power with respect to only a part of the property transferred,
in consequence of which a tax is imposed under subclauses (4)
through (7), the amount of the taxable transfer is only the
value of that portion of the property transferred which is
subject to the retained or reserved interest or power.
(3) A transfer conforming to subclause (1) and made within
one year of the death of the transferor is subject to tax only
to the extent that the value at the time of the transfer or
transfers in the aggregate to or for the benefit of the
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transferee exceeds three thousand dollars ($3,000) during any
calendar year.
(4) A transfer conforming to subclause (1) which takes
effect in possession or enjoyment at or after the death of the
transferor and under which the transferor has retained a
reversionary interest in the property, the value of which
interest immediately before the death of the transferor exceeds
five per cent of the value of the property transferred, is
subject to tax. The term "reversionary interest" includes a
possibility that property transferred may return to the
transferor or his estate or may be subject to a power of
disposition by him, but the term does not include a possibility
that the income alone from the property may return to him or
become subject to a power of disposition by him.
(5) A transfer conforming to subclause (1), and under which
the transferor expressly or impliedly reserves for his life or
any period which does not in fact end before his death, the
possession or enjoyment of, or the right to the income from, the
property transferred, or the right, either alone or in
conjunction with any person not having an adverse interest, to
designate the persons who shall possess or enjoy the property
transferred or the income from the property, is subject to tax.
(6) A transfer conforming to subclause (1), and under which
the transferee promises to make payments to, or for the benefit
of, the transferor or to care for the transferor during the
remainder of the transferor's life, is subject to tax.
(7) A transfer conforming to subclause (1), and under which
the transferor has at his death, either in himself alone or in
conjunction with any person not having an adverse interest, a
power to alter, amend or revoke the interest of the beneficiary,
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is subject to tax. Similarly, the relinquishment of such a power
within one year of the death of the transferor is a transfer
subject to tax except as otherwise provided in subclause (3).
(d) All succeeding interests which follow the interest of a
surviving spouse in a trust or similar arrangement, to the
extent specified in section 2113, are transfers subject to tax
as if the surviving spouse were the transferor.
Section 2108. Joint Tenancy.--(a) When any property is held
in the names of two or more persons or is deposited in a
financial institution in the names of two or more persons so
that, upon the death of one of them, the survivor or survivors
have a right to the immediate ownership or possession and
enjoyment of the whole property, the accrual of such right, upon
the death of one of them, shall be deemed a transfer subject to
tax of a fractional portion of such property to be determined by
dividing the value of the whole property by the number of joint
tenants in existence immediately preceding the death of the
deceased joint tenant.
(b) Except as provided in subsection (c), this section shall
not apply to property or interests in property passing by right
of survivorship to the survivor of husband and wife.
(c) If the co-ownership was created within one year prior to
the death of the co-tenant, the entire interest transferred
shall be subject to tax only under, and to the extent stated in,
subsection (c)(3) of section 2107 as though a part of the estate
of the person who created the co-ownership.
PART III
TRANSFERS NOT SUBJECT TO TAX
Section 2111. Transfers Not Subject to Tax.--(a) The
transfers enumerated in this section are not subject to the tax
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imposed by this article.
(b) Transfers of property to or for the use of any of the
following are exempt from inheritance tax:
(1) The United States of America.
(2) The Commonwealth of Pennsylvania.
(3) A political subdivision of the Commonwealth of
Pennsylvania.
(c) Transfers of property to or for the use of any of the
following are exempt from inheritance tax:
(1) Any corporation, unincorporated association or society
organized and operated exclusively for religious, charitable,
scientific, literary or educational purposes, including the
encouragement of art and the prevention of cruelty to children
or animals, no part of the net earnings of which inures to the
benefit of any private stockholder or individual and no
substantial part of the activities of which is carrying on
propaganda or otherwise attempting to influence legislation.
(2) Any trustee or trustees or any fraternal society, order
or association operating under the lodge system, but only if the
property transferred is to be used by the trustee or trustees or
by the fraternal society, order or association exclusively for
religious, charitable, scientific, literary or educational
purposes or for the prevention of cruelty to children or
animals, and no substantial part of the activities of the
trustee or trustees or of the fraternal society, order or
association is carrying on propaganda or otherwise attempting to
influence legislation.
(3) Any veterans' organization incorporated by act of
Congress or its departments or local chapters or posts, no part
of the net earnings of which inures to the benefit of any
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private shareholder or individual.
(d) All proceeds of insurance on the life of the decedent
are exempt from inheritance tax. Refunds of unearned premiums
for the current policy period and post mortem dividends shall be
considered exempt proceeds.
(e) All proceeds of any Federal War Risk Insurance, National
Service Life Insurance or similar governmental insurance are
exempt from inheritance tax. Refunds of unearned premiums for
the current policy period and post mortem dividends shall be
considered exempt proceeds.
(f) The pay and allowances determined by the United States
to be due a member of its armed forces for service in the
Vietnam conflict after August 5, 1964, for the period between
the date declared by it as the beginning of his missing-in-
action status to the date determined by it to be the date of his
death, are exempt from inheritance tax.
(g) Inter vivos transfers as defined in subsection (c) of
section 2107 which might otherwise be subject to inheritance tax
are exempt where the transferee is a governmental body as
provided in subsection (b) or a charity as provided in
subsection (c).
(h) Intangible personal property held by, for or for the
benefit of a decedent who, at the time of his death, was a
nonresident is exempt from inheritance tax.
(i) A transfer made as an advancement of or on account of an
intestate share or in satisfaction or partial satisfaction of a
gift by will, but not within the meaning of subsection (c)(3) of
section 2107, is exempt from inheritance tax.
(j) Adjusted service certificates issued under the act of
Congress of May 19, 1924, and adjusted service bonds issued
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under the act of Congress of January 27, 1936, are exempt from
inheritance tax.
(k) Property subject to a power of appointment, whether or
not the power is exercised, and notwithstanding any blending of
such property with the property of the donee, is exempt from
inheritance tax in the estate of the donee of the power of
appointment.
(l) Property awarded to the Commonwealth as statutory heir
by escheat or without escheat, otherwise than as custodian for a
known distributee, is exempt from inheritance tax. Inheritance
tax shall be deducted at the applicable rate without interest
from any such exempt funds thereafter distributed by the
Commonwealth.
(m) Property owned by husband and wife with right of
survivorship is exempt from inheritance tax. If the ownership
was created within the meaning of section 2107(c)(3), the entire
interest transferred shall be subject to tax under section
2107(c)(3) as though a part of the estate of the spouse who
created the co-ownership.
(n) Property held in the name of a decedent who had no
beneficial interest in the property is exempt from inheritance
tax.
(o) Obligations owing to the decedent which are worthless
immediately before death are exempt from inheritance tax
although collectible from the obligor's distributive share of
the estate.
(p) The lump-sum death payment from the Social Security
Administration or Veterans' Administration or any county
veterans' death benefit or other similar death benefit, whether
or not paid to the decedent's estate, is exempt from inheritance
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tax.
(q) The lump-sum burial benefit from the United States
Railroad Retirement Board, whether or not paid to the decedent's
estate, is exempt from inheritance tax.
(r) Payments under pension, stock bonus, profit-sharing and
other retirement plans, including H.R.10 plans, individual
retirement accounts, individual retirement annuities and
individual retirement bonds to distributees designated by the
decedent or designated in accordance with the terms of the plan,
are exempt from inheritance tax to the extent that the decedent
before his death did not otherwise have the right to possess
(including proprietary rights at termination of employment),
enjoy, assign or anticipate the payment made. In addition to
this exemption, whether or not the decedent possessed any of
these rights, the payments are exempt from inheritance tax to
the same extent that they are exempt from Federal estate tax
under the provisions of the Internal Revenue Code of 1986
(Public Law 99-514, 26 U.S.C. § 1 et seq.), as amended, any
supplement to the code or any similar provision in effect from
time to time for Federal estate tax purposes, except that a
payment which would otherwise be exempt for Federal estate tax
purposes if it had not been made in a lump-sum or other
nonexempt form of payment shall be exempt from inheritance tax
even though paid in a lump-sum or other form of payment. The
proceeds of life insurance otherwise exempt under subsection (d)
shall not be subject to inheritance tax because they are paid
under a pension, stock bonus, profit-sharing, H.R.10 or other
retirement plan.
(s) A transfer of real estate devoted to the business of
agriculture to or for the benefit of members of the same family,
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provided that after the transfer the real estate continues to be
devoted to the business of agriculture for a period of seven
years beyond the transferor's date of death, the real estate
derives a yearly gross income of at least two thousand dollars
($2,000) and the real estate is reported on a timely filed
inheritance tax return, provided that:
(1) Any tract of land under this article which is no longer
devoted to the business of agriculture within seven years beyond
the transferor's date of death or does not derive a yearly gross
income of at least two thousand dollars ($2,000) shall be
subject to inheritance tax due the Commonwealth under section
2107, in the amount that would have been paid or payable on the
basis of valuation authorized under section 2121 for nonexempt
transfers of property, plus interest thereon accruing as of the
transferor's date of death, at the rate established in section
2143.
(2) Any tax imposed under section 2107 shall be a lien in
favor of the Commonwealth upon the property no longer being
devoted to the business of agriculture or which does not derive
a yearly gross income of at least two thousand dollars ($2,000),
as well as the personal obligation of the owner of the property
at the time of the event causing the property to fail to qualify
for exemption and all beneficiaries of any trust that is an
owner of the property. Liability for the tax shall be joint and
several.
(3) Every owner of real estate exempt under this subsection
shall certify to the department on an annual basis that the land
qualifies for this exemption and shall notify the department
within thirty days of any transaction or occurrence causing the
real estate to fail to qualify for the exemption. Each year the
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department shall inform all owners of their obligation to
provide an annual certification under this subclause. This
certification and notification shall be completed in the form
and manner as provided by the department.
(s.1) A transfer of an agricultural commodity, agricultural
conservation easement, agricultural reserve, agricultural use
property or a forest reserve, as those terms are defined in
section 2122(a), to or for the benefit of lineal descendants or
siblings is exempt from inheritance tax, provided the foregoing
property is reported on a timely filed inheritance tax return.
(t) A qualified family-owned business. The following shall
apply:
(1) A transfer of a qualified family-owned business interest
to or for the benefit of members of the same family is exempt
from inheritance tax if the qualified family-owned business
interest:
(i) continues to be owned by members of the same family or a
trust whose beneficiaries are comprised solely of members of the
same family for a minimum of seven years after the decedent's
date of death; and
(ii) is reported on a timely filed inheritance tax return.
(2) A qualified family-owned business interest that was
exempted from inheritance tax under this subsection that is no
longer owned by members of the same family or a trust whose
beneficiaries are comprised solely of members of the same family
at any time within seven years after the decedent's date of
death shall be subject to inheritance tax due the Commonwealth
under section 2107, in an amount equal to the inheritance tax
that would have been paid or payable on the value of the
qualified family-owned business interest using the valuation
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authorized under section 2121 for nonexempt transfers of
property. Interest shall accrue from the payment date
established under section 2142 at the rate established under
section 2143.
(2.1) The exemption under this subsection shall not apply to
property transferred by the decedent into the qualified family-
owned business within one year of the death of the decedent
unless the property was transferred for a legitimate business
purpose.
(3) Inheritance tax due under section 2107 as a result of
disqualification under paragraphs (2) or (4), plus interest on
the inheritance tax, shall be a lien in favor of the
Commonwealth on the real and personal property of the owner of
the qualified family-owned business interest at the time of the
transaction or occurrence that disqualified the qualified
family-owned business interest from the exemption provided under
this subsection. The inheritance tax due and interest shall be
the personal obligation of the owner of the qualified family-
owned business interest at the time of the transaction or
occurrence that disqualified the qualified family-owned business
interest from the exemption provided under this subsection and
all beneficiaries of any trust that is an owner of the qualified
family-owned business interest. Liability for the tax shall be
joint and several. The lien shall remain until the inheritance
tax and accrued interest are paid in full.
(4) Each owner of a qualified family-owned business interest
exempted from inheritance tax under this subsection shall
certify to the department, on an annual basis, for seven years
after the decedent's date of death, that the qualified family-
owned business interest continues to be owned by members of the
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same family or a trust whose beneficiaries are comprised solely
of members of the same family and shall notify the department
within thirty days of any transaction or occurrence causing the
qualified family-owned business interest to fail to qualify for
the exemption. Each year, the department shall inform all owners
of a qualified family-owned business interest exempted from
inheritance tax under this subsection of their obligation to
provide an annual certification under this paragraph. The
certification and notification shall be completed in the form
and manner as provided by the department. An owner's failure to
comply with the certification or notification requirements shall
result in the loss of the exemption, and the qualified family-
owned business interest shall be subject to inheritance tax due
the Commonwealth under section 2107, in an amount equal to the
inheritance tax that would have been paid or payable on the
value of the qualified family-owned business interest using the
valuation authorized under section 2121 for nonexempt transfers
of property. Interest shall accrue from the payment date
established in section 2142 at the rate established in section
2143.
(5) For purposes of this subsection, the term "qualified
family-owned business interest" shall be as follows:
(i) an interest as a proprietor in a trade or business
carried on as a proprietorship, if the proprietorship has fewer
than fifty full-time equivalent employees as of the date of the
decedent's death, the proprietorship has a net book value of
assets totaling less than five million dollars ($5,000,000) as
of the date of the decedent's death and has been in existence
for five years prior to the date of the decedent's death; or
(ii) an interest in an entity carrying on a trade or
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business, if:
(A) the entity has fewer than fifty full-time equivalent
employees as of the date of the decedent's death;
(B) the entity has a net book value of assets totaling less
than five million dollars ($5,000,000) as of the date of the
decedent's death;
(C) as of the date of the decedent's death, the entity is
wholly owned by the decedent, by the decedent and members of the
same family, by a trust whose beneficiaries are comprised solely
of members of the same family or by an entity that is owned
solely by members of the same family;
(D) the entity is engaged in a trade or business the
principal purpose of which is not the management of investments
or income-producing assets owned by the entity; and
(E) the entity has been in existence for five years prior to
the decedent's date of death.
"Qualified transferee." A decedent's:
(i) husband or wife;
(ii) lineal descendants;
(iii) siblings and the sibling's lineal descendants; and
(iv) ancestors and the ancestor's siblings.
Section 2113. Trusts and Similar Arrangements for Spouses.--
(a) In the case of a transfer of property for the sole use of
the transferor's surviving spouse during the surviving spouse's
entire lifetime, all succeeding interests which follow the
interest of the surviving spouse shall not be subject to tax as
transfers by the transferor if the transfer was made by a
decedent dying on or after January 1, 1995, provided that the
transferor's personal representative may elect, on a timely
filed inheritance tax return, to have this section not apply to
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a trust or similar arrangement or portion of a trust or similar
arrangement.
(b) Succeeding interests not subject to tax as transfers by
the transferor by reason of subsection (a) shall be deemed to be
transfers subject to tax by the surviving spouse of the property
held in the trust or similar arrangement at the death of the
surviving spouse. The tax on that property shall be based upon
its value at the death of the surviving spouse, the tax rates
applicable to dispositions by the surviving spouse or by the
transferor, whichever are lower, and any exemptions relating to
the kind or location of property held in the trust or similar
arrangement at the surviving spouse's death.
(c) Subsection (b) shall apply even if the succeeding
interests not subject to tax as transfers by the transferor by
reason of subsection (a) were also not subject to tax by reason
of an exemption based upon the kind or location of property at
the transferor's death.
(d) This section shall not apply to inter vivos transfers
otherwise exempt from inheritance tax.
PART IV
RATE OF TAX
Section 2116. Inheritance Tax.--(a) (1) Inheritance tax
upon the transfer of property passing to or for the use of any
of the following shall be at the rate of four and one-half per
cent:
(i) grandfather, grandmother, father, mother, except
transfers under subclause (1.2), and lineal descendants; or
(ii) wife or widow and husband or widower of a child.
(1.1) Inheritance tax upon the transfer of property passing
to or for the use of a husband or wife shall be:
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(i) At the rate of three per cent for estates of decedents
dying on or after July 1, 1994, and before January 1, 1995.
(ii) At a rate of zero per cent for estates of decedents
dying on or after January 1, 1995.
(1.2) Inheritance tax upon the transfer of property from a
child twenty-one years of age or younger to or for the use of a
natural parent, an adoptive parent or a stepparent of the child
shall be at the rate of zero per cent.
(1.3) Inheritance tax upon the transfer of property passing
to or for the use of a sibling shall be at the rate of twelve
per cent.
(2) Inheritance tax upon the transfer of property passing to
or for the use of all persons other than those designated in
subclause (1), (1.1), (1.2) or (1.3) or exempt under section
2111(m) shall be at the rate of fifteen per cent.
(3) When property passes to or for the use of a husband and
wife with right of survivorship, one of whom is taxable at a
rate lower than the other, the lower rate of tax shall be
applied to the entire interest.
(b) (1) When the decedent was a resident, the tax shall be
computed upon the value of the property, in excess of the
deductions specified in Part VI, at the rates in effect at the
transferor's death.
(2) When the decedent was a nonresident, the tax shall be
computed upon the value of real property and tangible personal
property having its situs in this Commonwealth, in excess of
unpaid property taxes assessed on the property and any
indebtedness for which it is liened, mortgaged or pledged, at
the rates in effect at the transferor's death. The person liable
to make the return under section 2136 may elect to have the tax
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computed as if the decedent was a resident and his entire estate
was property having its situs in this Commonwealth, and the tax
due shall be the amount which bears the same ratio to the tax
thus computed as the real property and tangible personal
property located in this Commonwealth bears to the entire estate
of the decedent.
(b.1) The inheritance tax due upon the transfer of property
passing to or for the use of a husband or wife shall be the
lesser of the tax imposed under subsection (a)(1.1) or the tax
due after the allowance of the credit provided for under section
2112.
(c) When any person entitled to a distributive share of an
estate, whether under an inter vivos trust, a will or the
intestate law, renounces his right to receive the distributive
share receiving therefor no consideration, or exercises his
elective rights under 20 Pa.C.S. Ch. 22 (relating to elective
share of surviving spouse) receiving therefor no consideration
other than the interest in assets passing to him as the electing
spouse, the tax shall be computed as though the persons who
benefit by such renunciation or election were originally
designated to be the distributees, conditioned upon an
adjudication or decree of distribution expressly confirming
distribution to such distributees. The renunciation shall be
made within nine months after the death of the decedent. In the
case of a surviving spouse taking his elective share of an
estate, the renunciation shall be made within the time for
election and any extension thereof under 20 Pa.C.S. § 2210(b)
(relating to procedure for election; time limit). Notice of the
filing of the account and of its call for audit or confirmation
shall include notice of the renunciation or election to the
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department. When an unconditional vesting of a future interest
does not occur at the decedent's death, the renunciation
specified in this subsection of the future interest may be made
within three months after the occurrence of the event or
contingency which resolves the vesting of the interest in
possession and enjoyment.
(d) In case of a compromise of a dispute regarding rights
and interests of transferees, made in good faith, the tax shall
be computed as though the persons so receiving distribution were
originally entitled to it as transferees of the property
received in the compromise, conditioned upon an adjudication or
decree of distribution expressly confirming distribution to such
distributees. Notice of the filing of the account and of its
call for audit or confirmation shall include notice to the
department.
(e) If the rate of tax which will be applicable when an
interest vests in possession and enjoyment cannot be established
with certainty, the department, after consideration of relevant
actuarial factors, valuations and other pertinent circumstances,
may enter into an agreement with the person responsible for
payment to establish a specified amount of tax which, when paid
within sixty days after the agreement, shall constitute full
payment of all tax otherwise due upon such transfer. Rights of
withdrawal of a surviving spouse not exercised within nine
months of the transferor's death shall be ignored in making such
calculations.
(f) Property subject to a power of appointment, whether or
not the power is exercised and notwithstanding any blending of
the property with the property of the donee, shall be taxed only
as part of the estate of the donor.
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Section 2117. Estate Tax.--(a) In the event that a Federal
estate tax is payable to the Federal Government on the transfer
of the taxable estate of a decedent who was a resident of this
Commonwealth at the time of his death, and the inheritance tax,
if any, actually paid to the Commonwealth by reason of the death
of the decedent (disregarding interest or the amount of any
discount allowed under section 2142) is less than the maximum
credit for State death taxes allowable under section 2011 of the
Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §
2011), a tax equal to the difference is imposed. If a resident
decedent owned or had an interest in real property or tangible
personal property having a situs in another state, the tax so
imposed shall be reduced by the greater of:
(1) the amount of death taxes actually paid to the other
state with respect to the estate of the decedent, excluding any
death tax expressly imposed to receive the benefit of the credit
for state death taxes allowed under section 2011 of the Internal
Revenue Code of 1986 (26 U.S.C. § 2011); or
(2) an amount computed by multiplying the maximum credit for
state death taxes allowable under section 2011 of the Internal
Revenue Code of 1986 (26 U.S.C. § 2011) by a fraction, the
numerator of which is the value of the real property and
tangible personal property to the extent included in the
decedent's gross estate for Federal estate tax purposes and
having a situs in the other state and the denominator of which
is the value of the decedent's gross estate for Federal estate
tax purposes.
(b) In the event that a Federal estate tax is payable to the
Federal Government on the transfer of the taxable estate of a
decedent who was not a resident of this Commonwealth at the time
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of his death but who owned or had an interest in real property
or tangible personal property having a situs in this
Commonwealth, a tax is imposed in an amount computed by
multiplying the maximum credit for State death taxes allowable
under section 2011 of the Internal Revenue Code of 1986 (26
U.S.C. § 2011) by a fraction, the numerator of which is the
value of the real property and tangible personal property to the
extent included in the decedent's gross estate for Federal
estate tax purposes having a situs in this Commonwealth and the
denominator of which is the value of the decedent's gross estate
for Federal estate tax purposes, and deducting from that amount
the inheritance tax, if any, actually paid to the Commonwealth
(disregarding interest or the amount of any discount allowed
under section 2142).
(c) When an inheritance tax is imposed after an estate tax
imposed under subsection (a) or (b) has been paid, the estate
tax paid shall be credited against any inheritance tax later
imposed.
PART V
VALUATION
Section 2121. Valuation.--(a) Except as otherwise provided
in this part, the valuation date shall be the date of the
transferor's death. When the transfer was made during lifetime
and was not in trust, the property transferred shall be valued
at the transferor's death. When the transfer was to an inter
vivos trust, the property to be valued shall be that comprising
the portion of the trust, if any, which exists at the
transferor's death and which portion is traceable from property
the transfer of which is subject to tax under this article.
(b) The value of a life interest shall be determined in
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accordance with rules and regulations promulgated by the
department. Until the promulgation of rules and regulations to
the contrary, the regulations in effect for Federal estate tax
purposes shall apply.
(c) The value of an interest for a term certain shall be
determined in accordance with rules and regulations promulgated
by the department. Until the promulgation of rules and
regulations to the contrary, the regulations in effect for
Federal estate tax purposes shall apply.
(d) If an annuity or a life estate is terminated by the
death of the annuitant or life tenant or by the happening of a
contingency within nine months after the death of the
transferor, the value of the annuity or estate shall be the
value, at the date of the transferor's death, of the amount of
the annuity or income actually paid or payable to the annuitant
or life tenant during the period he was entitled to the annuity
or was in possession of the estate. If an appraisement of an
annuity or life estate has been filed before the termination,
the appraisement and any assessment based on the appraisement
shall be revised in accordance with this section upon request of
any party in interest, including the Commonwealth and the
personal representative, insofar as the appraisement and any
assessment based on the appraisement relates to the valuation of
the terminated annuity or life estate, without the necessity of
the party in interest following any procedure described in Part
XI.
(e) The value of a future interest shall be determined in
accordance with rules and regulations promulgated by the
department. Until the promulgation of rules and regulations to
the contrary, the regulations in effect for Federal estate tax
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purposes shall apply.
(f) When a decedent's property is subject, during his
lifetime and at the time of his death, to a binding option or
agreement to sell, the appraised value of the property shall not
exceed the amount of the established price payable for it
provided the option or agreement is a bona fide arrangement and
not a device to transfer the property for less than an adequate
and full consideration in money or money's worth. If the option
or agreement is not exercised and consummated, the value at
which the property is appraised shall not be limited to the
established price payable for the property, and it shall not
exceed the value of the property on the date of the transferor's
death. When tax has been assessed on the basis of an established
price and the option or agreement is not exercised and
consummated or an amount greater than the established price is
received for the property, the fiduciary or transferee shall
file a supplemental return reporting the facts.
Section 2122. Valuation of Certain Farmland.--(a) The
following words and phrases, when used in this section, shall
have the meaning ascribed to them in this section, except where
the context clearly indicates a different meaning:
"Agricultural commodity." Any and all plant and animal
products, including Christmas trees produced in this
Commonwealth for commercial purposes.
"Agricultural conservation easement." As defined in section
3 of the act of June 30, 1981 (P.L.128, No.43), known as the
"Agricultural Area Security Law."
"Agricultural reserve." Noncommercial open space lands used
for outdoor recreation or the enjoyment of scenic or natural
beauty and open to the public for such use, without charge or
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fee, on a nondiscriminatory basis.
"Agricultural use." Use of the land for the purpose of
producing an agricultural commodity or when devoted to and
meeting the requirements and qualifications for payments or
other compensation pursuant to a soil conservation program under
an agreement with an agency of the Federal Government.
"Forest reserve." Land, ten acres or more, stocked by forest
trees of any size and capable of producing timber or other wood
products.
"Separation." A division, by conveyance or other action of
the owner, of lands devoted to agricultural use, agricultural
reserve or forest reserve and preferentially assessed under the
provisions of this section into two or more tracts of land which
continue to be agricultural use, agricultural reserve or forest
reserve and all tracts so formed meet the requirements of
section 3 of the act of December 19, 1974 (P.L.973, No.319),
known as the "Pennsylvania Farmland and Forest Land Assessment
Act of 1974."
"Split-off." A division, by conveyance or other action of
the owner, of lands devoted to agricultural use, agricultural
reserve or forest reserve and preferentially assessed under the
provisions of this section into two or more tracts of land, the
use of which on one or more of such tracts does not meet the
requirements of section 3 of the act of December 19, 1974
(P.L.973, No.319), known as the "Pennsylvania Farmland and
Forest Land Assessment Act of 1974."
(b) (1) The value for transfer inheritance tax purposes of
land or an interest in land which is owned by a decedent and
devoted to agricultural use, agricultural reserve or forest
reserve shall be that value which such land has for its
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particular use if it also meets the following conditions:
(i) in the case of land devoted to agricultural use, the
land was devoted to such agricultural use for the three years
preceding the death of such decedent and is not less than ten
contiguous acres in area or has an anticipated yearly gross
income derived from agricultural use of two thousand dollars
($2,000);
(ii) in the case of land devoted to agricultural reserve,
the land is not less than ten contiguous acres in area;
(iii) in the case of land presently devoted to forest
reserve, the land is not less than ten contiguous acres in area;
or
(iv) the contiguous tract of land for which application is
made is not less than the entire contiguous area of the owner
used for agricultural use, agricultural reserve or forest
reserve purposes.
(2) In determining the value of land in agricultural use,
agricultural reserve or forest reserve for its particular use,
consideration shall be given to available evidence of such
land's capability for its particular use as derived from the
soil survey at The Pennsylvania State University, the National
Cooperative Soil Survey, the United States Census of
Agricultural Categories of land use classes and other evidence
of the capability of the land devoted to such use and also, if
the land is assessed under the provisions of the "Pennsylvania
Farmland and Forest Land Assessment Act of 1974," to the
valuation determined by the local county assessor thereunder.
(c) (1) If any tract of land in agricultural use,
agricultural reserve or forest reserve, which is valued for
inheritance tax purposes under the provisions of this part, is
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applied to a use other than agricultural use, agricultural
reserve or forest reserve or for any other reason, except
condemnation thereof, is removed from the category of land
preferentially valued under this part within seven years
following the death of such decedent, the owner at such time the
land is so removed shall be subject and liable to tax due the
Commonwealth in an amount equal to the difference, if any,
between the taxes paid or payable on the basis of the valuation
authorized under this section and the taxes that would have been
paid or payable had that land been valued and taxed on the basis
of its market value at the death of the decedent, plus interest
thereon for the period from the date of death to the change of
use at the rate established in section 2143.
(2) The tax shall be a lien upon the property in favor of
the Commonwealth, collectible in the manner provided by law for
the collection of delinquent real estate taxes, as well as the
personal obligation of the owner at the time of such change of
use. The tax shall become due on the date of change of use.
(3) Every owner of land preferentially valued under this
section shall notify the register of wills of the county or
counties in which the land is located of any change or proposed
change in the use of the land. Any owner failing to make
notification commits a misdemeanor of the third degree.
(d) (1) The split-off of a part of the land which has been
valued, assessed and taxed under this article for a use other
than agricultural use, agricultural reserve or forest reserve
within the seven-year period provided for by subsection (c)
shall, except when the split-off occurs through condemnation,
subject the land divided and the entire parcel from which the
land was divided to liability for taxes as otherwise set forth
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in this article except as provided in subclause (2).
(2) The owner of property subject to a preferential tax
assessment may split off land covered by the preferential tax
assessment within the seven-year period. The tract of land so
split-off shall not exceed two acres annually and may only be
used for residential use, agricultural use, agricultural reserve
or forest reserve and the construction of a residential dwelling
to be occupied by the person to whom the land is transferred.
The total parcel or parcels of land split-off under the
provisions of this subsection shall not exceed ten per cent or
ten acres, whichever is less, of the entire tract subject to the
preferential tax assessment. The split-off of a parcel of land
which meets the requirements of this subsection shall not
invalidate the preferential tax assessment if it continues to
meet the requirements of subsection (b).
(3) The owner of property subject to a preferential use
assessment may separate land covered by the preferential use
assessment. The separation shall not invalidate the preferential
tax assessment unless a subsequent abandonment of preferential
use occurs within seven years of the separation. The abandonment
shall subject the entire tract of land separated to liability
for taxes, which are to be paid by the person changing the use,
as set forth in this article.
(4) When property subject to preferential tax assessment is
separated among the beneficiaries taxed under subsection (a)(1)
of section 2116, a subsequent change within the seven-year
period provided for in subsection (b) in the use of one
beneficiary's portion of the property shall subject only that
tract held by the beneficiary who changes the use to liability
under this article.
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(e) The value for transfer inheritance tax purposes of land
or an interest in land which is part of an agricultural
conservation easement shall be at fifty per cent of the value
otherwise determined under this section.
PART VI
DEDUCTIONS
Section 2126. Deductions Generally.--The only deductions
from the value of the property transferred shall be those set
forth in this part. Except as otherwise provided in this
article, they shall be deductible regardless of whether or not
assets comprising the decedent's taxable estate are employed in
the payment or discharge of the deductible items. When a tax is
imposed upon a transfer described in subsection (c) of section
2107 and section 2108, the deductions shall be allowed to the
transferee only to the extent that the transferee has actually
paid the deductible items and either the transferee was legally
obligated to pay the deductible items or the estate subject to
administration by a personal representative is insufficient to
pay the deductible items.
Section 2127. Expenses.--The following expenses may be
deducted from the value of the property transferred:
(1) Administration expenses. All reasonable expenses of
administration of the decedent's estate and of the assets
includable in the decedent's taxable estate are deductible.
(2) Bequest to fiduciary or attorney in lieu of fees. A
transfer to an executor, trustee or attorney in lieu of
compensation for services is deductible to the extent it does
not exceed reasonable compensation for the services to be
performed.
(3) Family exemption. The family exemption is deductible.
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(4) Funeral and burial expenses. Reasonable and customary
funeral expenses, including the cost of a family burial lot or
other resting place, are deductible.
(5) Tombstones and gravemarkers. Reasonable and customary
expenses for the purchase and erection of a monument, gravestone
or marker on decedent's burial lot or final resting place are
deductible.
(6) Burial trusts or contracts. Bequests or devises in
trust, or funds placed in trust after decedent's death or funds
paid under a contract after decedent's death, in reasonable
amounts, to the extent that the funds or income from the funds
is to be applied to the care and preservation of the family
burial lot or other final resting place in which the decedent is
buried or the remains of the decedent repose and the structure
on the burial lot or other final resting place, are deductible.
(7) Bequests for religious services. Bequests in reasonable
amounts for the performance or celebration of religious rites,
rituals, services or ceremonies, in consequence of the death of
the decedent, shall be deductible.
Section 2128. Taxes.--The following taxes may be deducted
from the value of the property transferred:
(1) Property taxes. Taxes imposed against the decedent or
against any property constituting a part of decedent's gross
taxable estate and which are owing prior to decedent's death are
deductible. However, taxes for which decedent is not personally
liable shall not be deductible in an amount exceeding the value
of the property against which the taxes are liened.
(2) State and foreign death taxes. Death taxes other than
the Federal estate tax, disregarding interest and penalty, paid
to other states and territories of the United States and to
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taxing jurisdictions outside the United States and its
territories on assets, the transfer of which is subject to tax
under this article, if the taxes are required to be paid to
bring the assets into this Commonwealth, or to transfer them to
the new owner, are deductible.
Section 2129. Liabilities.--(a) Except as set forth in
section 2130(5), all liabilities of the decedent shall be
deductible subject to the limitations set forth in this section.
(b) Except as otherwise provided in subsections (h) and (i),
the deductions for indebtedness of the decedent, when founded
upon a promise or agreement, shall be limited to the extent that
it was contracted bona fide and for an adequate and full
consideration in money or money's worth.
(c) Except as provided by subclause (4) of section 2130,
indebtedness owing by the decedent upon a secured loan is
deductible whether or not the security is a part of the gross
taxable estate.
(d) Except as provided by subclause (4) of section 2130, the
decedent's liability (net of all collectible contribution) on a
joint obligation is deductible whether or not payment of the
obligation is secured by entireties property or property which
passes to another under the right of survivorship.
(e) Indebtedness arising from a contract for the support of
the decedent is deductible.
(f) Decedent's obligation is deductible whether or not
discharged by testamentary gift.
(g) Decedent's debt, which is unenforceable because of any
statute of limitations, is deductible if paid by the estate.
(h) A pledge to a transferee exempt under the provisions of
subsection (c) of section 2111 is deductible if paid by the
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estate, whether or not it is legally enforceable.
(i) Liabilities arising from the decedent's tort or from
decedent's status as an accommodation endorser, guarantor or
surety are deductible, except to the extent that it can be
reasonably anticipated that decedent's estate will be exonerated
or reimbursed by others primarily liable or subject to
contribution.
(j) The fact that a surviving spouse is legally liable and
financially able to pay any item which, if the deceased spouse
were unmarried, would qualify as a deduction under this part
shall not result in the disallowance of such item as a
deduction.
(k) Obligations for decedent's medical expenses are not
deductible to the extent decedent's estate will be exonerated or
reimbursed for such expenses from other sources.
Section 2130. Deductions Not Allowed.--The following are not
deductible:
(2) Claims of a former spouse, or others, under an agreement
between the former spouse and the decedent, insofar as they
arise in consideration of a relinquishment or promised
relinquishment of marital or support rights.
(3) Litigation expenses of beneficiaries.
(4) Indebtedness secured by real property or tangible
personal property, all of which has its situs outside of this
Commonwealth, except to the extent the indebtedness exceeds the
value of the property.
(5) Expenses, debts, obligations and liabilities incurred in
connection with a qualified family-owned business interest
exempted from inheritance under section 2111(t) and any property
exempted from inheritance tax under section 2111(s) or (s.1).
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PART VII
PAYMENT OF TAX
Section 2136. Returns.--(a) The following persons shall
make a return:
(1) The personal representative of the estate of the
decedent as to property of the decedent administered by him and
additional property which is or may be subject to inheritance
tax of which he shall have or acquire knowledge.
(2) The transferee of property upon the transfer of which
inheritance tax is or may be imposed by this article, including
a trustee of property transferred in trust. No separate return
need be made by the transferee of property included in the
return of a personal representative.
(b) The inclusion of property in the return shall not
constitute an admission that its transfer is taxable.
(c) Any person required to file a return under subsection
(a) shall promptly file a supplemental return with respect to
additional assets and transfers which come to his knowledge
after the original return has been filed.
(d) The returns required by subsection (a) shall be filed
within nine months after the death of the decedent. At any time
prior to the expiration of the nine-month period, the
department, in its discretion, may grant an extension of the
time for filing a return for an additional period of six months.
(e) The returns required by subsections (a) and (c) shall be
made in the form prescribed by the department.
(f) When the decedent was a resident, the returns shall be
filed with the register. When the decedent was a nonresident,
the returns shall be filed with the register who issued letters,
if any, in this Commonwealth; otherwise, the returns shall be
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filed with the department.
Section 2137. Appraisement.--The department shall have
supervision over, and make or cause to be made, fair and
conscionable appraisements of property the transfer of which is
subject to tax under this article. The appraisement, unless
suspended until audit, shall be made within six months after the
return has been filed and, if not so made, shall be made within
an additional period as the court, upon application of any party
in interest, including the personal representative, shall fix.
Section 2138. Deductions.--The official with whom the return
is required by subsection (f) of section 2136 to be filed shall
determine the allowance or disallowance of all deductions
claimed. The determination, unless suspended until audit, shall
be made within six months after the claim for allowance has been
filed and, if not so made, shall be made within such further
period as the court, upon application by any party in interest,
including the personal representative, shall fix. However, the
court, at the request of the fiduciary at the audit of his
account, may determine and allow, as deductions, all properly
deductible credits claimed in the account or allowed at the
audit without requiring the filing of a separate claim for them,
and the court may then fix the amount of the tax and decree
payment of the tax. Deductions exceeding one hundred dollars
($100) in the aggregate shall not be allowed by the court unless
the Commonwealth is represented at the audit by counsel or
unless there is proof that the register has had at least thirty
days notice of the claim.
Section 2139. Assessment of Tax.--After the appraisement has
been made and the allowance or disallowance of deductions
determined, the inheritance tax, as affected by the court's
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determination of the allowance or disallowance of deductions as
provided in section 2138, shall be assessed by the official with
whom the return is required to be filed under subsection (f) of
section 2136. The assessment, unless suspended until audit,
shall be made within one month after the filing of the
appraisement or determination of deductions, whichever occurs
later, and, if not so made, shall be made within an additional
period as the court, upon application by any party in interest,
including the personal representative, shall fix.
Section 2140. Notice.--The department shall give, or cause
to be given, notice of the filing of the appraisement, the
determination of the allowance or disallowance of deductions and
the amount of tax assessed, and all supplements, to the personal
representative and to any transferee who filed a tax return or
to their respective attorneys.
Section 2141. Failure to File Returns Not a Bar to
Assessment of Tax.--Failure to file a return of a taxable
transfer shall not bar the making of an appraisement or
supplemental appraisement or assessment of tax or supplemental
assessment of tax based upon taxable transfers not returned
under the provisions of this article.
Section 2142. Payment Date and Discount.--Inheritance tax is
due at the date of the decedent's death and shall become
delinquent at the expiration of nine months after the decedent's
death. To the extent that the inheritance tax is paid within
three months after the death of the decedent, a discount of five
per cent shall be allowed.
Section 2143. Interest.--If the inheritance tax is not paid
before the date it becomes delinquent, interest on the unpaid
tax shall be charged after the date of delinquency at the rate
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established pursuant to section 806 of the act of April 9, 1929
(P.L.343, No.176), known as "The Fiscal Code." When payment of
inheritance tax is not made because of litigation or other
unavoidable cause of delay and the property on which the tax has
been calculated has remained in the hands of a fiduciary and has
not produced a net income equal to the rate of interest provided
in this section annually, interest for such period shall be
calculated at the rate of the net income produced by the
property. Any payment on delinquent inheritance tax shall be
applied first to any interest due on the tax at the date of
payment and then, if there is any balance, to the tax itself.
Section 2144. Source of Payment.--(a) In the absence of a
contrary intent appearing in the will, the inheritance tax,
including interest, on the transfer of property which passes by
will absolutely and in fee, and which is not part of the
residuary estate, shall be paid out of the residuary estate and
charged in the same manner as a general administration expense
of the estate. The payments shall be made by the personal
representative and, if not so paid, shall be made by the
transferee of the residuary estate.
(b) In the absence of a contrary intent appearing in the
inter vivos trust, the inheritance tax, including interest, on
the transfer of property which passes absolutely and in fee by
inter vivos trust, and which is not part of the residue of the
inter vivos trust, shall be paid out of the residue of the trust
and charged in the same manner as a general administration
expense of the trust. The payment shall be made by the trustee
and, if not so paid, shall be made by the transferee of the
residue of the trust.
(c) In the absence of a contrary intent appearing in the
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will, the inheritance tax, including interest, on the transfer
of property which passes by will other than absolutely and in
fee, and which is not part of the residuary estate, shall be
paid out of the residuary estate and charged in the same manner
as a general administration expense of the estate. The payment
shall be made by the personal representative and, if not so
paid, shall be made by the transferee of the residuary estate.
(d) In the absence of a contrary intent appearing in the
inter vivos trust, the inheritance tax, including interest, on
the transfer of property which passes other than absolutely and
in fee by inter vivos trust, and which is not part of the
residue of the inter vivos trust, shall be paid out of the
residue of the trust and charged in the same manner as a general
administration expense of the trust. The payment shall be made
by the trustee and, if not so paid, shall be made by the
transferee of the residue of the trust.
(e) In the absence of a contrary intent appearing in the
will or other instrument of transfer, the inheritance tax, in
the case of a transfer of any estate, income or interest for a
term of years, for life or for other limited period, shall be
paid out of the principal of the property by which the estate,
income or interest is supported, except as otherwise provided in
subsection (c) or (d). The payment shall be made by the personal
representative or trustee and, if not so paid, shall be made by
the transferee of such principal.
(e.1) In the absence of a contrary intent appearing in the
will or other instrument of transfer creating the trust or
similar arrangement, and in the absence of a contrary intent
appearing in the will or other instrument of transfer of the
surviving spouse which expressly refers to the trust or similar
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arrangement, the inheritance tax, including interest, due at the
death of a surviving spouse with respect to a trust or similar
arrangement to which section 2113(b) is applicable shall be paid
out of the residue of the principal of the trust or similar
arrangement and charged as a general administration expense of
the trust or similar arrangement. The payment shall be made by
the trustee or other fiduciary in possession of the property
and, if not so paid, shall be made by the transferee of the
residue of the trust or similar arrangement.
(f) In the absence of a contrary intent appearing in the
will or other instrument of transfer and except as otherwise
provided in this section, the ultimate liability for the
inheritance tax, including interest, shall be upon each
transferee.
Section 2145. Estate Tax Return.--(a) The person or persons
required by section 2136 to make the inheritance tax return
shall be initially liable for payment of the estate tax.
(b) The personal representative of every decedent or, if
there is no personal representative, any other fiduciary charged
by law with the duty of filing a Federal estate tax return,
within one month of the filing or receipt of the return shall
file with the register or, if the decedent was a nonresident,
with the register who issued letters, if any, in this
Commonwealth, or otherwise with the department, a copy of the
decedent's Federal estate tax return and of any communication
from the Federal Government making any final change in the
return or of the tax due. The assessment of estate tax shall be
made by the register or department within three months after the
filing of the documents required to be filed and, if not so
made, shall be made within an additional period as the court,
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upon application of any party in interest, including the
personal representative, shall fix.
(c) The estate tax is due at the date of the decedent's
death but shall not become delinquent until the expiration of
nine months after decedent's death. Any estate tax occasioned by
a final change in the Federal return or of the tax due shall not
become delinquent until the expiration of one month after the
person or persons liable to pay the tax have received final
notice of the increase in the Federal estate tax.
(d) No discount shall be allowed in paying the estate tax.
(e) If the estate tax is not paid before the date it becomes
delinquent under subsection (c), interest on the unpaid tax
shall be charged after the date of delinquency at the rate
established in section 2143.
(f) The estate tax shall be apportioned and ultimately borne
in accordance with the provisions of 20 Pa.C.S. Ch. 37 (relating
to apportionment of death taxes) unless otherwise provided by
this article or in the instrument of transfer.
(g) When the decedent was a resident, the estate tax shall
be paid to the register. When the decedent was a nonresident,
the estate tax shall be paid to the register who issued letters,
if any, in this Commonwealth; otherwise, it shall be paid to the
department.
Section 2146. Deduction and Collection of Tax by Personal
Representative or Other Fiduciary.--Subject to the provisions of
sections 2144 and 2154, every personal representative or other
fiduciary (other than a trustee of a pension, stock-bonus,
profit-sharing, retirement annuity, deferred compensation,
disability, death benefit, or other employe benefit plan) in
charge of or in possession of any property, or instrument
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evidencing ownership of property, the transfer of which is
subject to a tax imposed by this article other than a tax on a
future interest not yet delinquent, shall deduct the tax from
the property, if money, or shall collect the tax from the
transferee. Any delivery of property or instrument by the
fiduciary to a transferee, except in accordance with a decree of
distribution of the court or pursuant to a duly executed notice
of election filed under section 2154, shall not relieve him of
personal liability for a tax imposed by this article. No
personal representative or other fiduciary in charge of or in
possession of any property subject to this article shall be
compelled to pay or deliver it to the transferee except upon
payment to him of the tax due other than tax on a future
interest not yet delinquent. If the transferee neglects or
refuses to pay the tax, the personal representative or other
fiduciary may sell the property subject to the tax, or so much
of the property as is necessary, under direction of the court.
All money retained by the personal representative or other
fiduciary, or paid to him on account of the taxes imposed by
this article, shall be remitted by him before the tax becomes
delinquent or, if received after the tax becomes delinquent,
shall be remitted by him promptly upon its receipt.
Section 2147. Duties of Depositories.--When money is
deposited or invested in a financial institution located in this
Commonwealth in the names of two or more persons, other than
husband and wife, or in the name of a person or persons in trust
for another or others, and one of the parties to the deposit or
investment dies, it shall be the duty of the financial
institution, within ten days after knowledge of the death, to
notify the department, giving the name of the deceased person,
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the date of the creation of the joint or trust deposit or
investment, the amount invested or on deposit at the date of
death with the financial institution and the name and address of
the survivor or survivors to the account. No notification shall
be required in regard to the account when the deposit at the
time of death does not exceed three hundred dollars ($300).
Section 2148. Compromise by Department.--The department,
with the approval of the Attorney General, may compromise in
writing, with the person liable, the tax, including interest on
the tax, payable on any transfer of property included in the
estate of any decedent who it is alleged was a nonresident at
the time of his death. A copy of the compromise agreement shall
be filed with the register who issued letters, if any, in this
Commonwealth; otherwise, it shall be filed with the department.
The compromise agreement shall constitute a final determination
of the matters covered by it and the payment of the tax, as
fixed by the agreement, shall discharge all persons and property
from liability with respect to the tax.
Section 2149. Interstate Compromise and Arbitration of
Inheritance Taxes.--When the register or the department alleges
that a decedent was a resident of this Commonwealth at the time
of his death, and the taxing authorities of another state or
territory make a like claim on behalf of their state or
territory, a written agreement of compromise or a written
agreement to submit the controversy to a board of arbitrators
may be made under Part VIII.
Section 2150. Extension of Time for Payment.--The department
may, for reasonable cause, extend the time for payment of any
part of the inheritance tax and may, if deemed necessary for the
protection of the interest of this Commonwealth, require the
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transferee in present possession or, if a trust is involved, the
trustee to file a bond in the name of the Commonwealth with
sufficient surety, in an amount not exceeding twice the tax
computed when the bond is given at the highest rate possible in
the specific contingencies involved (reduced by the amount of
any partial payment made) and conditioned for the payment of the
tax at such postponed due date, together with interest from the
due date to the payment date. No bond shall be required under
this section if the trustee or one of the trustees is a bank and
trust company or a trust company incorporated in this
Commonwealth or a national banking association having its
principal office in this Commonwealth. The bond required shall
be filed in the office of the register.
Section 2151. Bond for Delinquent Tax.--The court, in its
discretion, at any time after a tax imposed by this article
becomes delinquent, upon application of the department, may
require any person liable for a tax imposed by this article to
give a bond for its payment. The bond shall be in the name of
the Commonwealth, in such amount and with such surety as the
court approves and conditioned for the payment of the tax, plus
interest at the same rate as the interest rate on deficiencies
provided for in section 2143, commencing on the date the tax
became delinquent, within a time certain to be fixed by the
court and specified in the bond. The bond required shall be
filed in the office of the register.
Section 2152. Evidence of Payment of Tax for Real Estate in
Another County.--When any tax is imposed and paid under this
article on real estate located in a county other than that of
the register who received payment, the register shall, upon
request, immediately forward to the register of the county where
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the real estate is located a certificate of the payment of the
tax on the real estate which shall be entered of record in his
office. The register of the county where the real estate is
located shall be entitled to a fee of two dollars ($2) for
entering the record of payment to be paid as a part of the
administration expenses of the decedent's estate.
Section 2153. Penalties.--(a) Any person who willfully
fails to file a return or other report required of him under the
provisions of sections 2136 and 2145 shall be personally liable,
in addition to any liability imposed elsewhere in this article,
to a penalty of twenty-five per cent of the tax ultimately found
to be due or one thousand dollars ($1,000), whichever is less,
to be recovered by the department as debts of like amount are
recoverable by law.
(b) Any financial institution which fails to give the notice
required by section 2147 shall be liable to a penalty of one
hundred dollars ($100) to be recovered by the department as
debts of like amount are recoverable by law.
(c) Any person who willfully makes a false return or report
required of him under the provisions of this article, in
addition to any liability imposed elsewhere in this article,
commits a misdemeanor of the third degree.
Section 2154. Payment of Tax for Small Business Transfers.--
(a) Notwithstanding the provisions of section 2142, the
inheritance tax due under this article on the transfer of a
small business interest may be paid by the qualified transferee
in consecutive quarterly installments beginning immediately
following the expiration of nine months after the decedent's
death. The tax may be paid in twenty consecutive quarterly
installments.
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(b) The tax shall be paid in consecutive quarterly
installments due on March 31, June 30, September 30 and December
31 of each year, provided the return required by section 2136 is
timely filed, along with a notice of election executed by the
qualified transferee and joined in by the personal
representative which shall relieve the personal representative
or other fiduciary of liability for the collection and payment
of tax under section 2146. The notice of election shall be
completed on a form prescribed by the department containing at
least the following information:
(1) The name of the decedent and date of death.
(2) The name or names of the personal representative or
other fiduciary.
(3) The name or names of the qualified transferees filing
the election.
(4) A description and estimated valuation of the business
interest on which tax is due.
(5) A statement that the qualified transferees assume full
personal responsibility for the tax.
Each notice of election shall be affirmed before an officer
empowered to administer oaths. The installment payment of tax
shall bear interest at the rate of nine per cent per annum.
(c) In the event any portion of a small business interest on
which the installment payment of tax has been elected is sold,
exchanged or otherwise disposed of prior to the expiration of
five years following the date of death and that portion equals
or exceeds fifty per cent of the total value of the small
business interest received by the qualified transferee, the
transferee shall immediately provide written notice of the sale,
exchange or disposition to the department, and the full amount
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of the tax then outstanding on that portion shall become due and
payable at the expiration of sixty days following the date of
sale, exchange or other disposition.
(d) For purposes of this section, the term "small business
interest" means an interest in an operating trade or business
entity the principal purpose of which is not the management of
investments or income producing assets owned by the entity which
has employed an average of less than fifty full-time employes
during the twelve months immediately preceding the date of death
and which meets one of the following criteria:
(1) An interest as a proprietor in a trade or business
carried on as a proprietorship.
(2) An interest as a partner in a partnership carrying on a
trade or business if:
(i) twenty per cent or more of the total capital interest in
the partnership is included in determining the gross estate of
the decedent; or
(ii) the partnership had ten or less partners.
(3) Stock in a corporation carrying on a trade or business
if:
(i) twenty per cent or more in value of the voting stock of
the corporation is included in determining the gross estate of
the decedent; or
(ii) the corporation had ten or less shareholders.
(e) Qualified transferee defined.--For purposes of this
section, the term "qualified transferee" means a legatee or
other transferee receiving:
(1) ten per cent or more of the value of a proprietorship
qualifying as a small business interest as defined in subsection
(d);
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(2) ten per cent or more of the total capital interest in a
partnership qualifying as a small business interest as defined
in subsection (d); or
(3) ten per cent or more in value of the voting stock of a
corporation qualifying as a small business interest as defined
in subsection (d).
PART VIII
UNIFORM ACT ON INTERSTATE COMPROMISE AND
ARBITRATION OF INHERITANCE TAXES
Section 2156. Short Title.--This part shall be known and may
be cited as the "Uniform Act on Interstate Compromise and
Arbitration of Inheritance Taxes."
Section 2157. Compromise Agreement and Filing, Interest or
Penalty for Nonpayment of Taxes.--When the department or the
register claims a decedent was domiciled in this Commonwealth at
the time of his death and the taxing authority of another state
makes a like claim on behalf of its state, the department may,
with the approval of the Attorney General, make a written
agreement of compromise with the other taxing authority and the
executor or administrator of the decedent that a certain sum
shall be accepted in full satisfaction of any and all
inheritance taxes imposed by this Commonwealth, including any
interest or penalties to the date of signing the agreement. The
agreement shall also fix the amount to be accepted by the other
state in full satisfaction of inheritance taxes. The executor or
administrator of the decedent is authorized to make the
agreement. The agreement shall conclusively fix the amount of
tax payable to the Commonwealth without regard to any other
provision of the laws of this Commonwealth. Unless the tax
agreed upon is paid within sixty days after the signing of the
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agreement, interest or penalties shall accrue upon the amount
fixed in the agreement, but the time between the decedent's
death and the signing of the agreement shall not be included in
computing the interest or penalties. In the event the aggregate
amount payable under the agreement to the states involved is
less than the maximum credit allowable to the estate against the
Federal estate tax imposed with respect to the estate, the
personal representatives shall also pay to the department so
much of the difference between the aggregate amount and the
amount of such credit as the amount payable to the department
under the agreement bears to the aggregate amount. A copy of the
agreement shall be filed in the office of the proper register,
and any existing appraisement shall be deemed modified according
to the agreement. In the event no appraisement has been made and
filed prior to the agreement, the department shall direct an
appraisement to be made and filed in the office of the proper
register in accordance with the agreement.
Section 2158. Arbitration Agreement.--When the department or
the register claims that a decedent was domiciled in this
Commonwealth at the time of his death and the taxing authority
of another state makes a like claim on behalf of its state, the
department may, with the approval of the Attorney General, make
a written agreement with the other taxing authority and with the
executor or administrator of the decedent to submit the
controversy to the decision of a board consisting of one or any
uneven number of arbitrators. The executor or administrator of
the decedent is authorized to make the agreement. The parties to
the agreement shall select the arbitrator or arbitrators.
Section 2159. Arbitration Board.--(a) The board shall have
the power to administer oaths, take testimony, subpoena and
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require the attendance of witnesses and the production of books,
papers and documents and issue commissions to take testimony.
Subpoenas may be signed by any member of the board. In case of
failure to obey a subpoena, any judge of a court of record of
this Commonwealth, upon application by the board, may make an
order requiring compliance with the subpoena, and the court may
punish failure to obey the order as a contempt.
(b) The board shall hold hearings at a time and place it may
determine, upon reasonable notice to the parties to the
agreement, all of whom shall be entitled to be heard, to present
evidence and to examine and cross-examine witnesses.
(c) Except as provided in subsection (a) in respect to the
issuance of subpoenas, all questions arising in the course of
the proceedings shall be determined by a majority vote of the
board.
(d) The board shall, by a majority vote, determine the
domicile of the decedent at the time of his death. This
determination shall be final for the purpose of imposing and
collecting inheritance taxes but for no other purpose.
(e) The compensation and expenses of the members of the
board and its employes may be agreed upon among the members and
the executor or administrator and, if they cannot agree, shall
be fixed by any court having jurisdiction over probate matters
of the State determined by the board to be the domicile of the
decedent. The amounts so agreed upon or fixed shall be deemed an
administration expense and shall be payable by the executor or
administrator.
Section 2160. Filing of Determination of Domicile and Other
Documents.--The department, register or board, or the executor
or administrator of the decedent, shall file the determination
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