Governor Kathleen Blanco recently signed into law several tax breaks that were passed during the 2007 Regular Session. In all, the new tax breaks are currently estimated to save taxpayers upwards of $180 million in 2007 and $390 million in 2008. Included in the myriad of cuts offered to taxpayers are the repeal of the Louisiana Gift Tax, repeal of the Louisiana Inheritance Tax, and a partial repeal of the Stelly Plan.

On July 10, 2007, Governor Blanco repealed the gift tax by signing Senate Bill 90 into law. The repeal goes into effect July 1, 2008, so gifts made on or after that date will no longer be subject to Louisiana gift taxes. Gifts made prior to July 1, 2008, however, remain subject to gift tax.

All gifts transferred in Louisiana prior to July 1, 2008 are subject to a tax based on the actual value of the gift. For these gifts, a tax is imposed if the amount of the gift exceeds the annual exclusion and lifetime exclusion limits. The annual exclusion is $12,000 per donee. Therefore, a person who donates less than $12,000 to a single recipient is excluded from paying a gift tax for those donations. A donor who makes gifts in excess of $12,000 per recipient has the option of applying his lifetime exclusion limit, which is $30,000, to the gift. The donor may claim all or part of the exemption when computing the amount subject to tax in any one calendar year.¹

If a gift exceeds the annual exclusion amount or uses the lifetime exclusion limit, a taxpayer must file a state gift tax return by April 15^th of the year following the year the gift was made. As such, a taxpayer who makes a gift that requires reporting during the remainder of 2007 must file a return by April 15, 2008. Gifts made between January 1, 2008 and June 30, 2008 must be reported by April 15, 2009. No return is required for gifts made after June 30, 2008.

Since gifts made on or after July 1, 2008 will no longer be subject to gift taxes as described above, taxpayers may consider waiting until the repeal date to make a gift that is currently subject to tax. By waiting until July 1, 2008, a taxpayer can escape all Louisiana gift taxes and avoid filing a gift tax return.

In addition to repealing the gift tax, the legislature also amended the current inheritance tax statute to provide for the complete repeal of Louisiana inheritance tax. Effective January 1, 2008, no inheritance tax will be due for any death occurring after June 30, 2004, under any circumstances.

Under prior law, an inheritance tax was due if a succession was not timely opened. That is, the inheritance tax could be avoided if a succession was opened within nine months of the date of death. Therefore, until January 1, 2008, any inheritance tax must be paid and an inheritance tax return must be filed in the event that the succession representative does not timely open the succession.

Under the new legislation, which is effective January 1, 2008, no inheritance tax will be due for deaths occurring after June 30, 2004, regardless of the date the succession is opened. In addition, there are no requirements for filing inheritance tax documents with the Department of Revenue for deaths that occur after the effective date. There are no changes in the inheritance tax law for deaths occurring prior to July 1, 2004.

As of August 1, 2008, all persons who paid inheritance taxes for deaths occurring after June 30, 2004 may file for a refund of those taxes. No claims will be processed before August 1, 2008 and the deadline to file for a refund is December 31, 2009.

On July 10, 2007, Governor Blanco signed Act 399 into law amending LA. R.S. 47:293, which is known as the "Stelly Plan." Prior to the amendment, a Louisiana taxpayer who itemized federal income tax deductions could not take a deduction on their State tax income tax return to the extent that federal itemized deductions exceeded the standard federal deduction ("excess federal deduction").

Effective as of August 15, 2007, a taxpayer is now allowed a state income tax deduction that is based upon the excess federal deduction. The deduction phases-in over the next few years and is calculated by multiplying the excess federal deduction by the applicable percentage rate. The applicable percentage rate is 57.5% for tax year 2007, 65% for tax year 2008, and 100% for tax year 2009 and thereafter.

¹ For example, Revenue Information Bulletin No. 07-019, states, "During calendar year 2007 John gives his sons James and Mark $20,000 each. This is the first time John has made any gifts. Therefore, in computing the amount of the gifts that are subject to tax, John is allowed an annual exclusion of $12,000 for each son and a specific lifetime exemption of $30,000. The amount of gifts subject to tax will be zero ($40,000 minus $24,000 in annual exclusions and $16,000 of the specific lifetime exemption). John will have $14,000 fo the specific lifetime exemption ($30,000 - $16,000) available to use in future years."