G.S. 105-32.2(a) – North Carolina imposes an estate tax on the estate of a decedent when a federal estate tax is imposed on the estate and the decedent was either (1) a resident of North Carolina who owned property in North Carolina or property that has a tax situs in another state or, (2) a nonresident who owned real property in North Carolina or personal property that has a tax situs in North Carolina.
G.S. 105-32.2(b) – Under federal estate law enacted in 2001, the state death tax credit was phased out over three years beginning in 2002. For estates of decedents dying after December 31, 2004, the state death tax credit was replaced with a deduction for state death taxes. Under North Carolina law, an estate that is not subject to the federal estate tax is not subject to the State estate tax. However, the North Carolina General Assembly did not adopt either the federal phase-out or termination of the credit. Therefore, the North Carolina estate tax is equal to the 2001 state death tax credit for estates of decedents dying before July 1, 2005.
The 2004 General Assembly amended G.S. 105-32.2(b) to provide that the North Carolina estate tax is calculated without regard to the deduction for state death taxes allowed under section 2058 of the Code. (Code section 2058 replaces the state death tax credit with a deduction for state death taxes for decedents dying after December 31, 2004.) The amendment was scheduled to expire on July 1, 2005. However, the 2005 General Assembly repealed the sunset.
Therefore, for decedents dying on or after January 1, 2005, the North Carolina estate tax will continue to be equal to the state death tax credit that was allowable under section 2011 of the Internal Revenue Code as it existed prior to 2002. The amount of North Carolina estate tax cannot exceed the amount of federal estate tax determined without regard to the deduction for state death taxes allowed under Section 2058 of the Code and the tax credits allowed under Sections 2011 through 2015 of the Code.
G.S. 105-32.4 – A North Carolina Estate Tax Return (Form A-101) is required to be filed by the personal representative if a federal estate tax return is required to be filed with the Internal Revenue Service. If a decedent owned property in two or more states, the credit must be prorated between those states by completing the applicable lines on Form A-101.
The North Carolina Estate Tax Return must be filed with the North Carolina Department of Revenue at the same time the federal estate tax return is due, which is nine months from the date of death.
If the Internal Revenue Service corrects or otherwise determines gross estate tax and the report of the changes is received on or after July 1, 2006, an amended State return must be filed within six months from the date the report is received. If a report of federal changes from the IRS was received before July 1, 2006, an amended State return must be filed within two years from the date the report was received.
Estate Tax Waivers: Senate Bill 1229, which was signed into law on July 30, 1998, amended the inheritance tax statutes effective for estates of decedents dying on or after August 1, 1998.
Under prior law, bank accounts, certificates of deposit, IRAs, corporate stocks, bonds, etc., could not be transferred from the decedent’s name without a tax waiver from the Department of Revenue. Senate Bill 1229 repealed the requirement that an inheritance and estate tax waiver (Form A-105) be obtained from the Department before ownership of a decedent’s bank accounts, stocks, bonds, etc., can be transferred.
(Because estate taxes are still a lien against real property owned by the decedent, waivers will still be issued for real estate if requested.)