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§ 9111. Transfers not subject to tax

Purdon's Pennsylvania Statutes and Consolidated StatutesTitle 72 P.S. Taxation and Fiscal AffairsEffective: July 13, 2016

Purdon's Pennsylvania Statutes and Consolidated Statutes
Title 72 P.S. Taxation and Fiscal Affairs
Chapter 5. Tax Reform Code of 1971
Article XXI. Inheritance Tax (Refs & Annos)
Part III. Transfers Not Subject to Tax
Effective: July 13, 2016
72 P.S. § 9111
§ 9111. Transfers not subject to tax
(a) The transfers enumerated in this section are not subject to the tax imposed by this article.
(b) Transfers of property to or for the use of any of the following are exempt from inheritance tax:
(1) The United States of America.
(2) The Commonwealth of Pennsylvania.
(3) A political subdivision of the Commonwealth of Pennsylvania.
(c) Transfers of property to or for the use of any of the following are exempt from inheritance tax:
(1) Any corporation, unincorporated association or society organized and operated exclusively for religious, charitable, scientific, literary or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual and no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation.
(2) Any trustee or trustees or any fraternal society, order or association operating under the lodge system, but only if the property transferred is to be used by the trustee or trustees or by the fraternal society, order or association exclusively for religious, charitable, scientific, literary or educational purposes or for the prevention of cruelty to children or animals, and no substantial part of the activities of the trustee or trustees or of the fraternal society, order or association is carrying on propaganda or otherwise attempting to influence legislation.
(3) Any veterans' organization incorporated by act of Congress or its departments or local chapters or posts, no part of the net earnings of which inures to the benefit of any private shareholder or individual.
(d) All proceeds of insurance on the life of the decedent are exempt from inheritance tax. Refunds of unearned premiums for the current policy period and post mortem dividends shall be considered exempt proceeds.
(e) All proceeds of any Federal War Risk Insurance, National Service Life Insurance or similar governmental insurance are exempt from inheritance tax. Refunds of unearned premiums for the current policy period and post mortem dividends shall be considered exempt proceeds.
(f) The pay and allowances determined by the United States to be due a member of its armed forces for service in the Vietnam conflict after August 5, 1964, for the period between the date declared by it as the beginning of his missing-in-action status to the date determined by it to be the date of his death, are exempt from inheritance tax.
(g) Inter vivos transfers as defined in subsection (c) of section 21071 which might otherwise be subject to inheritance tax are exempt where the transferee is a governmental body as provided in subsection (b) or a charity as provided in subsection (c).
(h) Intangible personal property held by, for or for the benefit of a decedent who, at the time of his death, was a nonresident is exempt from inheritance tax.
(i) A transfer made as an advancement of or on account of an intestate share or in satisfaction or partial satisfaction of a gift by will, but not within the meaning of subsection (c)(3) of section 2107,2 is exempt from inheritance tax.
(j) Adjusted service certificates issued under the act of Congress of May 19, 1924, and adjusted service bonds issued under the act of Congress of January 27, 1936, are exempt from inheritance tax.
(k) Property subject to a power of appointment, whether or not the power is exercised, and notwithstanding any blending of such property with the property of the donee, is exempt from inheritance tax in the estate of the donee of the power of appointment.
(l) Property awarded to the Commonwealth as statutory heir by escheat or without escheat, otherwise than as custodian for a known distributee, is exempt from inheritance tax. Inheritance tax shall be deducted at the applicable rate without interest from any such exempt funds thereafter distributed by the Commonwealth.
(m) Property owned by husband and wife with right of survivorship is exempt from inheritance tax. If the ownership was created within the meaning of section 2107(c)(3),3 the entire interest transferred shall be subject to tax under section 2107(c)(3) as though a part of the estate of the spouse who created the co-ownership.
(n) Property held in the name of a decedent who had no beneficial interest in the property is exempt from inheritance tax.
(o) Obligations owing to the decedent which are worthless immediately before death are exempt from inheritance tax although collectible from the obligor's distributive share of the estate.
(p) The lump-sum death payment from the Social Security Administration or Veterans' Administration or any county veterans' death benefit or other similar death benefit, whether or not paid to the decedent's estate, is exempt from inheritance tax.
(q) The lump-sum burial benefit from the United States Railroad Retirement Board, whether or not paid to the decedent's estate, is exempt from inheritance tax.
(r) Payments under pension, stock bonus, profit-sharing and other retirement plans, including H.R.10 plans, individual retirement accounts, individual retirement annuities and individual retirement bonds to distributees designated by the decedent or designated in accordance with the terms of the plan, are exempt from inheritance tax to the extent that the decedent before his death did not otherwise have the right to possess (including proprietary rights at termination of employment), enjoy, assign or anticipate the payment made. In addition to this exemption, whether or not the decedent possessed any of these rights, the payments are exempt from inheritance tax to the same extent that they are exempt from Federal estate tax under the provisions of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.), as amended, any supplement to the code or any similar provision in effect from time to time for Federal estate tax purposes, except that a payment which would otherwise be exempt for Federal estate tax purposes if it had not been made in a lump-sum or other nonexempt form of payment shall be exempt from inheritance tax even though paid in a lump-sum or other form of payment. The proceeds of life insurance otherwise exempt under subsection (d) shall not be subject to inheritance tax because they are paid under a pension, stock bonus, profit-sharing, H.R.10 or other retirement plan.
<Section 51(1.1) of Act 2016, July 13, P.L. 526, No. 84, provides that the amendment of 72 P.S. § 9111(s) by that Act shall apply to inheritance tax imposed as to a decedent whose date of death is after December 31, 2012.>
(s) A transfer of real estate devoted to the business of agriculture to or for the benefit of members of the same family, provided that after the transfer the real estate continues to be devoted to the business of agriculture for a period of seven years beyond the transferor's date of death, the real estate derives a yearly gross income of at least two thousand dollars ($2,000) and the real estate is reported on a timely filed inheritance tax return, provided that:
(1) Any tract of land under this article which is no longer devoted to the business of agriculture within seven years beyond the transferor's date of death or does not derive a yearly gross income of at least two thousand dollars ($2,000) shall be subject to inheritance tax due the Commonwealth under section 2107, in the amount that would have been paid or payable on the basis of valuation authorized under section 21214 for nonexempt transfers of property, plus interest thereon accruing as of the transferor's date of death, at the rate established in section 2143.5
(2) Any tax imposed under section 2107 shall be a lien in favor of the Commonwealth upon the property no longer being devoted to the business of agriculture or which does not derive a yearly gross income of at least two thousand dollars ($2,000), as well as the personal obligation of the owner of the property at the time of the event causing the property to fail to qualify for exemption and all beneficiaries of any trust that is an owner of the property. Liability for the tax shall be joint and several.
(3) Every owner of real estate exempt under this subsection shall certify to the department on an annual basis that the land qualifies for this exemption and shall notify the department within thirty days of any transaction or occurrence causing the real estate to fail to qualify for the exemption. Each year the department shall inform all owners of their obligation to provide an annual certification under this subclause. This certification and notification shall be completed in the form and manner as provided by the department.
<Section 51(1.1) of Act 2016, July 13, P.L. 526, No. 84, provides that the amendment of 72 P.S. § 9111(s.1) by that Act shall apply to inheritance tax imposed as to a decedent whose date of death is after December 31, 2012.>
(s.1) A transfer of an agricultural commodity, agricultural conservation easement, agricultural reserve, agricultural use property or a forest reserve, as those terms are defined in section 2122(a),6 to or for the benefit of lineal descendants or siblings is exempt from inheritance tax, provided the foregoing property is reported on a timely filed inheritance tax return.
<Section 51(2) of Act 2016, July 13, P.L. 526, No. 84, provides that the amendment of 72 P.S. § 9111(t) by that Act shall apply to inheritance tax imposed as to a decedent whose date of death is after June 30, 2013.>
(t) A qualified family-owned business. The following shall apply:
(1) A transfer of a qualified family-owned business interest to or for the benefit of members of the same family is exempt from inheritance tax if the qualified family-owned business interest:
(i) continues to be owned by members of the same family or a trust whose beneficiaries are comprised solely of members of the same family for a minimum of seven years after the decedent's date of death; and
(ii) is reported on a timely filed inheritance tax return.
(2) A qualified family-owned business interest that was exempted from inheritance tax under this subsection that is no longer owned by members of the same family or a trust whose beneficiaries are comprised solely of members of the same family at any time within seven years after the decedent's date of death shall be subject to inheritance tax due the Commonwealth under section 2107, in an amount equal to the inheritance tax that would have been paid or payable on the value of the qualified family-owned business interest using the valuation authorized under section 2121 for nonexempt transfers of property. Interest shall accrue from the payment date established under section 21427 at the rate established under section 2143.
(2.1) The exemption under this subsection shall not apply to property transferred by the decedent into the qualified family-owned business within one year of the death of the decedent unless the property was transferred for a legitimate business purpose.
(3) Inheritance tax due under section 2107 as a result of disqualification under paragraphs (2) or (4), plus interest on the inheritance tax, shall be a lien in favor of the Commonwealth on the real and personal property of the owner of the qualified family-owned business interest at the time of the transaction or occurrence that disqualified the qualified family-owned business interest from the exemption provided under this subsection. The inheritance tax due and interest shall be the personal obligation of the owner of the qualified family-owned business interest at the time of the transaction or occurrence that disqualified the qualified family-owned business interest from the exemption provided under this subsection and all beneficiaries of any trust that is an owner of the qualified family-owned business interest. Liability for the tax shall be joint and several. The lien shall remain until the inheritance tax and accrued interest are paid in full.
(4) Each owner of a qualified family-owned business interest exempted from inheritance tax under this subsection shall certify to the department, on an annual basis, for seven years after the decedent's date of death, that the qualified family-owned business interest continues to be owned by members of the same family or a trust whose beneficiaries are comprised solely of members of the same family and shall notify the department within thirty days of any transaction or occurrence causing the qualified family-owned business interest to fail to qualify for the exemption. Each year, the department shall inform all owners of a qualified family-owned business interest exempted from inheritance tax under this subsection of their obligation to provide an annual certification under this paragraph. The certification and notification shall be completed in the form and manner as provided by the department. An owner's failure to comply with the certification or notification requirements shall result in the loss of the exemption, and the qualified family-owned business interest shall be subject to inheritance tax due the Commonwealth under section 2107, in an amount equal to the inheritance tax that would have been paid or payable on the value of the qualified family-owned business interest using the valuation authorized under section 2121 for nonexempt transfers of property. Interest shall accrue from the payment date established in section 2142 at the rate established in section 2143.
(5) For purposes of this subsection, the term “qualified family-owned business interest” shall be as follows:
(i) an interest as a proprietor in a trade or business carried on as a proprietorship, if the proprietorship has fewer than fifty full-time equivalent employees as of the date of the decedent's death, the proprietorship has a net book value of assets totaling less than five million dollars ($5,000,000) as of the date of the decedent's death and has been in existence for five years prior to the date of the decedent's death; or
(ii) an interest in an entity carrying on a trade or business, if:
(A) the entity has fewer than fifty full-time equivalent employees as of the date of the decedent's death;
(B) the entity has a net book value of assets totaling less than five million dollars ($5,000,000) as of the date of the decedent's death;
(C) as of the date of the decedent's death, the entity is wholly owned by the decedent, by the decedent and members of the same family, by a trust whose beneficiaries are comprised solely of members of the same family or by an entity that is owned solely by members of the same family;
(D) the entity is engaged in a trade or business the principal purpose of which is not the management of investments or income-producing assets owned by the entity; and
(E) the entity has been in existence for five years prior to the decedent's date of death.

Credits

1971, March 4, P.L. 6, No. 2, art. XXI, § 2111, added 1991, Aug. 4, P.L. 97, No. 22, § 36, effective in 60 days. Amended 1994, June 16, P.L. 279, No. 48, § 33, effective July 1, 1994; 1995, June 30, P.L. 139, No. 21, § 17, imd. effective; 2002, June 29, P.L. 559, No. 89, § 29, effective July 1, 2002; 2003, Dec. 23, P.L. 250, No. 46, § 25, imd. effective; 2012, July 2, P.L. 751, No. 85, § 23, imd. effective; 2013, July 9, P.L. 270, No. 52, § 34, imd. effective; 2016, July 13, P.L. 526, No. 84, § 46, imd. effective.
JT. ST. GOVT. COMM. COMMENT--1981
Source: Subsections (b) through (e) from Sections 301 through 304 of the Inheritance and Estate Tax Act of 1961 [72 P.S. §§ 2485-301 to 2485-304], respectively; subsection (f) from Section 304.1, added to the Inheritance and Estate Tax Act of 1961 [72 P.S. § 2835-304.1] by the act of July 10, 1979 (P.L. 84, No. 34); and subsections (g) through (r) from Sections 305 through 316 [72 P.S. §§ 2485-305 to 2485-316], respectively. Subsection (a) is added.
Comment: Subsections (d) and (e) abolish the taxation of life insurance proceeds payable to the estate of the insured and make clear that refunds of unearned premiums and post-mortem dividends are exempt from taxation. Subsection (r) prevents lump-sum benefits from being subject to tax and clarifies the conclusion reached in Ravdin Estate, 484 Pa. 562, 400 A.2d 591 (1979), affirmed 25 Fid.Rep. 640 (1975) that benefits under various types of retirement plans are eligible for this exemption.
HISTORICAL AND STATUTORY NOTES
Act 1991-22 legislation
Section 43(3) of Act 1991, August 4, P.L. 97, No. 22, provides:
“The addition of Article XXI shall apply to the estate of decedents dying on or after the effective date of Article XXI and to inter vivos transfers made by decedents dying on or after the effective date of Article XXI regardless of the date of transfer.”
Act 1994-48 legislation
The 1994 amendment, had it become applicable in 1998 (see Act 1995-21 legislation), at the end of subsec. (k), would have added “except as provided in section 2113”, and would have rewritten subsec. (m) to read:
“Transfers of property to or for the use of a husband or wife of the decedent are exempt from inheritance tax. Property owned by husband and wife with right of survivorship is exempt from inheritance tax.”
Section 43(4)(ii) of Act 1994, June 16, P.L. 279, No. 48, provided that the amendment of this section would have applied to the estates of decedents dying on or after January 1, 1998, and to inter vivos transfers made by decedents dying on or after January 1, 1998, regardless of the date of the transfer.
Section 24 of the act of 1995, June 30, P.L. 139, No. 21 provides that section 43(4)(ii) of the 1994 act is repealed “insofar as it limits the amendment or addition of Article XXI from applying to the estates of decedents dying on or after January 1, 1995.”
Act 1995-21 legislation
The 1995 amendment restored the text of subsecs. (k) and (m) to read as prior to the purported 1994 amendment.
Section 26(4) of the 1995 act provides that the amendment of subsecs. (k) and (m) shall apply to the estates of decedents dying on or after January 1, 1995, and to inter vivos transfers made by decedents dying on or after January 1, 1995, without regard to the date of the transfer.
Act 2002-89 legislation
Act 2002-89, § 29, in subsec. (r), in the first sentence, deleted “, but not limited to,” following “retirement plans, including”; in the second sentence, deleted “under the provisions of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.), as amended, any supplement to the code or any similar provision in effect from time to time for Federal estate tax purposes” preceding “except that a payment”; and made other nonsubstantive changes.
Section 34(5)(ii) of 2002, June 29, P.L. 559, No. 89, effective July 1, 2002, provides that the amendment of subsec. (r) shall apply to estates of decedents who die after June 30, 2002.
Act 2003-46 legislation
Act 2003-46, § 25, in subsec. (r), inserted “under the provisions of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.), as amended, any supplement to the code or any similar provision in effect from time to time for Federal estate tax purposes”.
Section 33(17)(ii) of 2003, Dec. 23, P.L. 250, No. 46, imd. effective, provides that the amendment of section 2111(r) of the act shall apply to the estates of decedents who die after June 30, 2002.
Act 2012-85 legislation
Act 2012-85, § 23, added subsecs. (s) and (s.1).
Section 30(7) of 2012, July 2, P.L. 751, No. 85, provides that the amendment of 72 P.S. § 9111 shall apply to the estates of decedents dying after June 30, 2012.
Act 2013-52 legislation
Act 2013-52, § 34, added subsec. (t).
Section 42(4) of 2013, July 9, P.L. 270, No. 52, imd. effective, provides that the addition of 72 P.S. § 9111(t) by this act shall apply to the estates of decedents who die on or after July 1, 2013.
Act 2016-84 legislation
Act 2016-84, § 46, rewrote subsec. (s), which prior thereto read:
“(s) A transfer of real estate devoted to the business of agriculture between members of the same family, provided that after the transfer the real estate continues to be devoted to the business of agriculture for a period of seven years beyond the transferor's date of death and the real estate derives a yearly gross income of at least two thousand dollars ($2,000), provided that:
“(1) Any tract of land under this article which is no longer devoted to the business of agriculture within seven years beyond the transferor's date of death shall be subject to inheritance tax due the Commonwealth under section 2107, in the amount that would have been paid or payable on the basis of valuation authorized under section 2121 for nonexempt transfers of property, plus interest thereon accruing as of the transferor's date of death, at the rate established in section 2143.
“(2) Any tax imposed under section 2107 shall be a lien in favor of the Commonwealth upon the property no longer being devoted to agricultural use, collectible in the manner provided for by law for the collection of delinquent real estate taxes, as well as the personal obligation of the owner of the property at the time of the change of use.
“(3) Every owner of real estate exempt under this subsection shall certify to the department on an annual basis that the land qualifies for this exemption and shall notify the department within thirty days of any transaction or occurrence causing the real estate to fail to qualify for the exemption. Each year the department shall inform all owners of their obligation to provide an annual certification under this subclause. This certification and notification shall be completed in the form and manner as provided by the department.”
; in subsec. (s.1), substituted “to or for the benefit of lineal descendants or siblings is exempt from inheritance tax, provided the foregoing property is reported on a timely filed inheritance tax return” for “to lineal descendants or siblings is exempt from inheritance tax”; in subsec. (t)(1), in the introductory paragraph, substituted “or for the benefit of members of the same family” for “one or more qualified transferees”; in subsecs. (t)(1)(i), (2) and (4), substituted “members of the same family or a trust whose beneficiaries are comprised solely of members of the same family” for “a qualified transferee”; in subsec. (t)(3), deleted “collectible in the manner provided for by law for the collection of delinquent taxes and shall be” preceding “the personal obligation”, and inserted “and all beneficiaries of any trust that is an owner of the qualified family-owned business interest. Liability for the tax shall be joint and several”; and rewrote subsec. (t)(5), which prior thereto read:
“(5) For purposes of this subsection, the following terms shall have the meanings given to them in this paragraph:
“ ‘Qualified family-owned business interest.’ As follows:
“(i) an interest as a proprietor in a trade or business carried on as a proprietorship, if the proprietorship has fewer than fifty full-time equivalent employees as of the date of the decedent's death, the proprietorship has a net book value of assets totaling less than five million dollars ($5,000,000) as of the date of the decedent's death and has been in existence for five years prior to the date of the decedent's death; or
“(ii) an interest in an entity carrying on a trade or business, if:
“(A) the entity has fewer than fifty full-time equivalent employees as of the date of the decedent's death;
“(B) the entity has a net book value of assets totaling less than five million dollars ($5,000,000) as of the date of the decedent's death;
“(C) as of the date of the decedent's death, the entity is wholly owned by the decedent or by the decedent and members of the decedent's family that meet the definition of a qualified transferee;
“(D) the entity is engaged in a trade or business the principal purpose of which is not the management of investments or income-producing assets owned by the entity; and
“(E) the entity has been in existence for five years prior to the decedent's date of death.
“ ‘Qualified transferee.’ A decedent's:
“(i) husband or wife;
“(ii) lineal descendants;
“(iii) siblings and the sibling's lineal descendants; and
“(iv) ancestors and the ancestor's siblings.”
Section 51(1.1) of Act 2016, July 13, P.L. 526, No. 84, provides that the amendment of 72 P.S. § 9111(s) and (s.1) by that Act shall apply to inheritance tax imposed as to a decedent whose date of death is after December 31, 2012.
Section 51(2) of Act 2016, July 13, P.L. 526, No. 84, provides that the amendment of 72 P.S. § 9111(t) by that Act shall apply to inheritance tax imposed as to a decedent whose date of death is after June 30, 2013.
Prior Laws:
1961, June 15, P.L. 373, Art. III, §§ 301 to 316 (72 P.S. §§ 2485--301 to 2485--316).
1968, Jan. 20, P.L. (1967) 1031, No. 451, § 1.
1979, July 10, P.L. 84, No. 34, § 1.
1982, Dec. 13, P.L. 1086, No. 255, § 1 (72 Pa.C.S.A. § 1711).

Footnotes

72 P.S. § 9107(c).
72 P.S. § 9107(c)(3).
72 P.S. § 9107(c)(3).
72 P.S. § 9121.
72 P.S. § 9143.
72 P.S. § 9122.
72 P.S. § 9142.
72 P.S. § 9111, PA ST 72 P.S. § 9111
Current through 2017 Regular Session Act 32
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