Iowa is one of six states that levies an inheritance tax. The other five states include Nebraska, Kentucky, Pennsylvania, New Jersey, and Maryland. Indiana is the most recent state to repeal its inheritance tax in 2013. Even several high tax states do not have an inheritance tax.
Previous Iowa legislatures ended the inheritance tax for spouses and lineal ascendants and descendants, but the tax remains for non-lineal beneficiaries. Bills have been introduced in past legislative sessions to either abolish or gradually phase-out the inheritance tax but to no avail. This tax is not only discriminatory but places an exorbitant burden upon the recipient who must pay the tax. The inheritance tax may cause a recipient to incur debt or even force them to sell (a portion or all) the inherited business or farm as a direct consequence.
During the 2018 legislative session, the legislature enacted a comprehensive tax reform that began the process of lowering Iowa’s individual and corporate tax rates. Abolishing the inheritance tax will not only end this obsolete tax and instill more fairness in the tax code, but it will strengthen Iowa’s tax reform. States have either abolished the inheritance tax either as a part of a comprehensive tax reform, eliminated it at once, or phased the tax out. Iowa should follow the many states who have eliminated the inheritance tax. Making Iowa’s tax code fairer for all taxpayers should be a priority of the legislature.