Some contend that Oregon’s estate tax is the death knell for family businesses, especially farms. Don’t believe it.
Oregon estate tax laws (specifically ORS 118.140) exempt the first $7.5 million of value of most farm businesses, tree farms and fishing operations. The exemptions include operations raising crops, nursery stock, fruit, livestock, poultry, fur-bearing animals, bees, fish and dairy products. Real property (including the residence) used in the farm business is eligible for the exemption, as is up to 5,000 acres of timberland. Fishing vessels and processing plants are also eligible. Thus, if a traditional farm, timber farm or fishing operation has a value of less than $7.5 million, it passes free of Oregon estate tax.
On top of the $7.5 million exemption for farms, timberland and fishing operations, each individual has a $1 million exemption. With modest tax planning, a married couple can pass roughly $2 million of wealth to the next generation free of any Oregon estate tax.
Oregon’s rate starts at 10% and gradually ratchets up to 16%. Some examples may be helpful. If a married couple does minimal tax planning, the first $2M is tax free. The tax on the next million is $101,250. If their aggregate wealth is $5 million (i.e., $3 million in excess of their $2 million aggregate exemption), the tax is $312,500. Thus, for example, if a married couple owns a car dealership worth $5M, the estate tax at the surviving spouse’s death should be about $312,500. Hardly enough to break the bank for a family having $5 million of net worth.
Oregonians don’t move to Washington to escape estate tax – because Washington has an estate tax too. Washington’s $2 million exemption per spouse is larger than Oregon’s, but Washington’s rates are also higher. The maximum Washington rate is 19%, compared to 16% for Oregon.
It is true California does not have an estate tax – yet. But 20 other states do.
The bottom line: (1) most Oregonians (i.e., single individuals with less than $1 million and married couples with less than $2 million) will not pay any Oregon estate tax, (2) the Oregon rates (ranging from 10% to 16%) seldom create a tax liability jeopardizing small businesses, and (3) why should Oregon gratuitously give away tax revenues when the funds are sorely needed?