Wash. lawmakers face deadline on estate tax fix

OLYMPIA, Wash. (AP) -- Washington's Department of Revenue is preparing to send out millions of dollars in tax refunds in response to a Supreme Court ruling — unless lawmakers who returned Wednesday for a second special legislative session take quick action.

A potential legislative fix is detailed in one of the bills the state Senate majority has offered in exchange for support of reform bills.

Officials said the state could have to pay out $160 million over the next two years if the fix isn't made to the law. The figure includes more than $92 million in refunds, nearly $5 million in cancellation of assessments that haven't yet been paid, and $63 million less in future collections through the middle of 2015.

Senate leaders say they're close to a deal, and the House said a vote could come Thursday, just in time to prevent the first $13 million the state agency says it must send to 10 estates unless a measure is passed and signed into law.

Additional checks were being processed to be sent out in coming weeks.

"Once the refunds go out, it's hard to stop that flow," said House Majority Leader Pat Sullivan, D-Covington. Sullivan said he hoped there would be an agreement with the Senate by Thursday, but either way, the House would take a vote. "We've got to get this done."

Lawmakers want a legislative workaround to last year's ruling by the state Supreme Court, which determined the estate tax did not apply to married couples who had used a certain type of trust in their estate planning.

The Department of Revenue says it has already received 70 refund requests totaling more than $40 million from estates that had paid the taxes prior to the court ruling. Others have gone to court to seek refunds.

The House previously passed a bill closing the marital trust exemption, and the Senate has offered a bill that does the same while also increasing the tax on the largest estates and creating an additional exemption for family owned businesses.

"This gives us a chance to correct a wrong by the court and do something for small family businesses," said Senate Republican Leader Mark Schoesler, R-Ritzville. "I think we're very, very close."

Mike Gowrylow, a spokesman for the Department of Revenue, said lawmakers have been told that in order to prevent the first of the refunds being sent out, action must be taken before a 9 a.m. Friday court hearing involving an estate seeking a refund.

Prior judges have ordered the Department of Revenue to make refunds. In two of the cases, the court has sanctioned the department for opposing the refund requests and ordered it to pay attorney fees to plaintiffs.

"To reduce or eliminate the risk of additional sanctions, DOR needs to be able to tell the judge at the hearing on Friday either that it has begun issuing refunds or the Legislature has passed and the governor has signed a retroactive law that allows the state to reject the refund requests," Gowrylow said in an email.

In the joint case that sparked the measure — the Estate of Bracken and Estate of Nelson — the state has already paid a refund of $3.2 million to the Bracken estate, and cancelled a $2 million assessment on the Nelson estate, Gowrylow said. Those refunds would not be returned, even if any fix that might be made is retroactive, he said.

Lawmakers started a second, potentially 30-day special session on Wednesday after adjourning their first special session on Tuesday without a deal on the state operating budget.

They currently face a $1.2 billion budget shortfall for the two-year cycle that ends in the middle of 2015 — an amount that doesn't include money lawmakers are seeking for education in response to a Supreme Court ruling that the state isn't fulfilling its constitutional obligations.

Budget negotiations have been taking place for weeks between the Democratic-controlled House and the Senate, which is controlled by a coalition of 23 Republicans and two Democrats.

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