Repeal of the federal estate tax, presuming no countervailing state legislative action, will reduce state tax receipts by several billions of dollars annually. The state death tax credit is limited based on the size of the estate and a set of graduated rates specified in federal law. In addition, Louisiana and Connecticut have enacted laws to move to a pure pick-up tax by 2004 and 2005, respectively. Mississippi phased out its separate estate tax. Nebraska employs a pick-up tax at the state level.
Counties impose and collect a separate inheritance tax.
North Carolina moved from an inheritance tax to a pick-up only tax effective January 1, 1999. Repeal of the federal estate tax will have the effect of repealing the state death tax in those jurisdictions that rely only on a pick-up or sponge tax. The remaining states employ a separate estate tax or a separate inheritance tax, although in most cases the definition of many items in the tax conforms closely to the federal estate tax. The state death tax credit has been a permanent feature of the federal estate tax since 1926. At the same time, state leaders were seeking mechanisms to reduce what was becoming an intense competition for wealthy residents.