Does Texas Collect an Estate Tax?

A History of the Texas Estate Tax and Its Repeal

Texas, Fort Worth skyline at sunrise.

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Fourteen states and the District of Columbia collected an estate tax as of 2018, but Texas is no longer one of them.

Major changes took effect with regard to federal estate tax laws in the millennium and this affected the Texas estate tax. Texas actually did collect one at the state level up until January 1, 2005. It was called a "pick-up tax," also known as a "sponge tax," and it was equal to a portion of the overall federal estate tax bill that an estate was subject to.

What Is a Pick-Up Tax?

The pick-up tax was a state estate tax that was based on a tax credit the IRS once allowed on federal estate tax returns prior to January 1, 2005. Each state had different tax laws with regard to this pick-up tax so the amount it would collect varied. But the overall estate tax bill was not increased or decreased due to the pick-up tax. Instead, the total tax bill was apportioned between the IRS and the state taxing authority.

So what does this mean in plain English? Let's say an estate owed $10,000 in the federal estate tax. A portion of this—maybe $5,000—was taken away from the IRS and paid instead to the decedent's state taxing authority. If a Texas resident's estate owed federal estate taxes, the Texas Comptroller's Office would collect the $10,000 from the deceased Texan's estate, keep $5,000, and send the $5,000 balance to the federal government. 

What Is the Future of the Texas Estate Tax?

The pick-up tax was officially phased out for all states that collected it under the provisions of the Economic Growth and Tax Relief Reconciliation Act or "EGTRRA" beginning in 2001. Some states that used to collect a pick-up tax began collecting an estate tax of their own in response, without the cooperation or involvement of the IRS. This practice was referred to as "decoupling" because these states that enacted a state estate tax no longer based their tax laws on the current federal laws.

The majority of states did absolutely nothing, however. They simply stopped collecting an estate tax, which was, and still is, the case in Texas. Under the provisions of EGTRRA, the pick-up tax was supposed to return in 2011, but that never happened. The Tax Relief Act of 2010 was subsequently enacted and it reinstated federal estate taxes but did not bring back the pick-up tax.

Then the provisions of the Tax Relief Act expired on January 1, 2013. It looked for a while that this would bring an estate tax back to Texas, but the state repealed Chapter 211 of the Texas Tax Code on September 15, 2015, eliminating it once and for all and permanently decoupling it from federal provisions. However, Texas residents may still be subject to the federal estate tax.