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Family farms get relief with end to death tax

By   /   August 13, 2012  /   1 Comment

By Melissa Daniels | PA Independent

Family farms in Pennsylvania are now exempt from the state’s “death tax,” or a tax on transfer of assets from a deceased owner to a child or relative.

HARRISBURG — Jay Grove’s grandfather built Gro-Lan Farms in 1905, the Franklin County dairy farmer said proudly.

More than a century later, Grove and his brother, Jeff, grow grain to feed their dairy cows on 425 acres and produce some 10,000 8-ounce glasses of milk a day.

Not all family farms experience this success. Grove tells a story of a neighboring farmer who sold his 130 acres to a developer who built more than 130 houses there.

“Family farms have struggled over the years just to stay alive,” he said.

But Grove said Pennsylvania took a step in the right direction to help keep farms in the family.

The state repealed the inheritance tax, or “death tax,” as it applies to family-owned farms, a passage celebrated at a news conference at Gro-Lan Farms in early August.

The death tax for family farms provides only a sliver of the overall death tax revenue. This past fiscal year, the state collected $827.7 million in overall death tax revenue. Without taxing farms, the state expects to lose between $2 million and $3 million in revenue next year.

By 2015, the overall death tax revenue will decrease by $5 million without the family farm revenue. Other sources for inheritance tax revenue include shared bank account assets, stocks and bonds, mortgages and other real estate.

For a family farm, the death tax was 4.5 percent for the child of a decedent, and 12 percent for a sibling. It applied to the total value of the farm, including equipment.

For example, if a farmer’s daughter was to inherit a farm worth $500,000 from her parent, the tax would be $22,500, paid within nine months.

The Legislature wrote the exemption into the Pennsylvania Tax Code, which passed with the fiscal 2012-2013 budget.

The new exemption applies to farm property that generates an annual income of $2,000 or more through family-run agricultural operations.

Mark O’Neill, media relations director with the Pennsylvania Farm Bureau, which represents more than 55,000 farmers in the state, said the agency has been fighting to repeal the tax for years.

When it comes to farmers, the adage is sometimes true that they can be “land rich, and cash poor,” O’Neill said.

“Profit margins in farming are very tight to begin with,” he said. “There isn’t this cash lying around to pay this tax.”

Often, those who inherit the land would sell a portion of the farm to pay the tax or take out a loan. Other times, they would get out of farming and sell the entire whole farm, he said.

Kevin Shivers

Kevin Shivers, executive director for Pennsylvania’s chapter of National Federation of Independent Businesses, a small business advocacy group, said removing the inheritance tax is in line with the state’s open space preservation programs. It could keep portions of farms from getting sold to developers, he said.

“In the southeast, where they are really concerned about sprawl, you have family farms where the property was passed on from the parent to the children,” he said. “They couldn’t afford to the pay the taxes to keep the land and the family farming. Ultimately, they sell the land to a developer.”

State Rep. Stephen Bloom

State Rep. Stephen Bloom, R-Cumberland, who sponsored the death tax repeal measure, said taxing family farms that could render them out of business made no sense, especially while the state spends $200 million annually in the agriculture industry.

“Obviously it was important to eliminate the death tax for family-farm properties but, to me, that is the beginning of a long sustained process we need to pursue to completely eliminate the Pennsylvania death tax,” Bloom said.

Speaking at a news conference at Gro-Lan Farms to a members of the Grove family and Pennsylvania Future Farmers of America, Gov. Tom Corbett said he supports phasing out the death tax altogether.

“At some point I hope I get to do this with other taxes in Pennsylvania,” he said.


Melissa formerly served as staff reporter for Watchdog.org.