In January 2013, Congress passed an estate tax regime of a 40 percent rate and a $5 million exemption, indexed for inflation. This legislation also preserved crucial planning techniques such as stepped-up basis and spousal transfer of unused exemption amounts. Now that the estate tax is finally permanent, Congress must avoid making harmful changes that would impair the ability of dealerships to be transferred to the next generation or put dealership jobs at risk.
In 2001, a phase-out and eventual repeal of the estate tax was signed into law. However, the 2001 law included a provision to “sunset” the law after 2010 without further Congressional action, which would have returned the tax to the confiscatory levels of a 55 percent rate with $1 million exemption.
In December 2010, Congress passed a two-year estate tax regime at NADA-supported levels of a 35 percent rate with a $5 million exemption. The legislation also included other provisions critical to mitigating the effects of the estate tax, such as stepped-up basis, full transfer of an unused exemption, indexing of the exemption to inflation, and a reunification of the gift and estate taxes at a $5 million exemption.
In January 2013, as part of the “fiscal cliff” legislation, Congress passed a permanent estate tax law at a 40 percent rate and a $5 million exemption, indexed for inflation. The law also included the planning provisions included in the 2010 act.
• Most dealerships are family-owned businesses with significant estate tax exposure. Many NADA member dealerships have spent decades building their companies and are second- or third-generation businesses.
• The estate tax particularly hurts dealerships since assets, such as land and single-use showroom facilities, cannot be liquidated to pay the tax without destroying the viability of the dealership.
• Estate tax planning and life insurance take significant resources out of the dealership every year, yet cannot sufficiently mitigate the effects of the estate tax. Family businesses should not have to sell their businesses or incur substantial debt to pay the tax.
NADA will continue its leadership role in the Family Business Estate Tax Coalition to ensure that estate tax policy does not prevent small business automobile dealerships from surviving the unanticipated loss of a key family member.