HB 2066 — An Act amending the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971, repealing provisions relating to inheritance tax; in procedure and administration, further providing for petition for reassessment; and, in governmental obligations, further providing for taxability of government obligations.

PRINTER'S NO.   2649

                     THE GENERAL ASSEMBLY OF PENNSYLVANIA



                         HOUSE BILL
                         No. 2066
                                                 Session of
                                                   2025

     INTRODUCED BY KEPHART, CAUSER, SMITH, MARCELL, HAMM, M. BROWN,
        M. MACKENZIE, GUENST, PICKETT, KAUFFMAN, BANTA, WARNER, ROWE,
        KOZAK, ZIMMERMAN, ANDERSON, GILLEN, KUTZ, FINK, EMRICK, WALSH
        AND BARGER, NOVEMBER 24, 2025

     REFERRED TO COMMITTEE ON FINANCE, DECEMBER 3, 2025


                                    AN ACT
 1   Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
 2      act relating to tax reform and State taxation by codifying
 3      and enumerating certain subjects of taxation and imposing
 4      taxes thereon; providing procedures for the payment,
 5      collection, administration and enforcement thereof; providing
 6      for tax credits in certain cases; conferring powers and
 7      imposing duties upon the Department of Revenue, certain
 8      employers, fiduciaries, individuals, persons, corporations
 9      and other entities; prescribing crimes, offenses and
10      penalties," repealing provisions relating to inheritance tax;
11      in procedure and administration, further providing for
12      petition for reassessment; and, in governmental obligations,
13      further providing for taxability of government obligations.
14      The General Assembly of the Commonwealth of Pennsylvania
15   hereby enacts as follows:
16      Section 1.    Article XXI of the act of March 4, 1971 (P.L.6,
17   No.2), known as the Tax Reform Code of 1971, is repealed:
18                               [ARTICLE XXI
19                             INHERITANCE TAX
20                                  PART I
21                          PRELIMINARY PROVISIONS
22      Section 2101.    Short Title.--This article shall be known and
 1   may be cited as the "Inheritance and Estate Tax Act."
 2      Section 2102.     Definitions.--The following words, terms and
 3   phrases, when used in this article, shall have the meanings
 4   ascribed to them in this section, except where the context
 5   clearly indicates a different meaning:
 6      "Adverse interest."    A substantial beneficial interest in the
 7   property transferred which might be adversely affected by the
 8   exercise or nonexercise of the power or right reserved or
 9   possessed by the transferor.
10      "Business of agriculture."    The term shall include the
11   leasing to members of the same family or the leasing to a
12   corporation or association owned by members of the same family
13   of property which is directly and principally used for
14   agricultural purposes. The business of agriculture shall not be
15   deemed to include:
16      (1)   recreational activities such as, but not limited to,
17   hunting, fishing, camping, skiing, show competition or racing;
18      (2)   the raising, breeding or training of game animals or
19   game birds, fish, cats, dogs or pets or animals intended for use
20   in sporting or recreational activities;
21      (3)   fur farming;
22      (4)   stockyard and slaughterhouse operations; or
23      (5)   manufacturing or processing operations of any kind.
24      "Children."   Includes natural children whether or not they
25   have been adopted by others, adopted children and stepchildren.
26      "Clerk."   The clerk of the orphans' court division of the
27   court of common pleas having jurisdiction.
28      "Court."   The orphans' court division of the court of common
29   pleas of:
30      (1)   The county in which the decedent resided at the time of

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 1   his death.
 2      (2)     The county in which letters, if any, are granted if the
 3   decedent was a nonresident of this Commonwealth.
 4      (3)     Dauphin County in all other cases.
 5      "Date of death."     The date of actual death or, in the case of
 6   a presumed decedent, the date found by the final decree to be
 7   the date of the absentee's presumed death. For the purpose of
 8   determining interest and discount, "date of death" means the
 9   date upon which the court enters its final decree of presumptive
10   death.
11      "Death taxes."    Includes inheritance, succession, transfer
12   and estate taxes and any other taxes levied against the estate
13   of a decedent by reason of his death.
14      "Decedent" or "transferor."     Any person by or from whom a
15   transfer is made and includes any testator, intestate, grantor,
16   settlor, bargainor, vendor, assignor, donor, joint tenant and
17   insured.
18      "Department."    The Department of Revenue of the Commonwealth.
19      "Exemption income."    All moneys or property, including,
20   without limitation, interest, gains or income derived from
21   obligations which are statutorily free from State or local
22   taxation under any other Federal or State laws, received of
23   whatever nature and from whatever source derived.
24      "Financial institution."     A bank, a national banking
25   association, a bank and trust company, a trust company, a
26   savings and loan association, a building and loan association, a
27   mutual savings bank, a credit union, a savings bank and a
28   company that rents safe deposit boxes.
29      "Future interest."    Includes a successive life interest and a
30   successive interest for a term certain.

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 1      "Lineal descendants."     All children of the natural parents
 2   and their descendants, whether or not they have been adopted by
 3   others, adopted descendants and their descendants and
 4   stepdescendants.
 5      "Members of the same family."           Any individual, such
 6   individual's brothers and sisters, the brothers and sisters of
 7   such individual's parents and grandparents, the ancestors and
 8   lineal descendents of any of the foregoing, a spouse of any of
 9   the foregoing and the estate of any of the foregoing.
10   Individuals related by the half blood or legal adoption shall be
11   treated as if they were related by the whole blood. For a
12   transfer made by a surviving spouse, the term shall include any
13   individual considered to be a member of the same family of the
14   decedent spouse.
15      "Notice."     Written notice.
16      "Presumed decedent."    A person found to be presumptively dead
17   under the provisions of 20 Pa.C.S. Ch. 57 (relating to absentees
18   and presumed decedents) or, if a nonresident of this
19   Commonwealth, under the laws of his domicile.
20      "Property" or "estate."     Includes the following:
21      (1)   All real property and all tangible personal property of
22   a resident decedent or transferor having its situs in this
23   Commonwealth.
24      (2)   All intangible personal property of a resident decedent
25   or transferor.
26      (3)   All real property and all tangible personal property of
27   a resident decedent having its situs outside this Commonwealth,
28   which the decedent had contracted to sell, provided the
29   jurisdiction in which the property has its situs does not
30   subject it to death tax.

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 1      (4)   All real property and all tangible personal property of
 2   a nonresident decedent or transferor having its situs in this
 3   Commonwealth, including property held in trust.
 4      (5)   A liquor license issued by the Commonwealth.
 5      "Register."    The register of wills having jurisdiction to
 6   grant letters testamentary or of administration in the estate of
 7   the decedent or transferor.
 8      "Safe deposit box of a decedent."    A safe deposit box in a
 9   financial institution located within this Commonwealth in the
10   name of the decedent alone or in the names of the decedent and
11   one or more persons other than the spouse of the decedent.
12      "Secretary."    The Secretary of Revenue of the Commonwealth.
13      "Sibling."    An individual who has at least one parent in
14   common with the decedent, whether by blood or by adoption.
15      "Territory."    Includes the District of Columbia and all
16   possessions of the United States.
17      "Transfer."    Includes the passage of ownership of property,
18   or interest in property or income from property, in possession
19   or enjoyment, present or future, in trust or otherwise.
20      "Transferee."    Any person to whom a transfer is made and
21   includes any legatee, devisee, heir, next of kin, grantee,
22   beneficiary, vendee, assignee, donee, surviving joint tenant and
23   insurance beneficiary.
24      "Transfer of property for the sole use."    A transfer to or
25   for the use of a transferee if, during the transferee's
26   lifetime, the transferee is entitled to all income and principal
27   distributions from the property and no person, including the
28   transferee, possesses an inter vivos power of appointment over
29   the property.
30      "Value."     The price at which the property would be sold by a

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 1   willing seller, not compelled to sell, to a willing buyer, not
 2   compelled to buy, both of whom have reasonable knowledge of the
 3   relevant facts. In determining the value of property, no
 4   reduction shall be made on account of income, excise or other
 5   taxes which may become payable subsequent to the valuation date
 6   by the transferee or out of the property. Value as to land in
 7   agricultural use, agricultural reserve or forest reserve means
 8   the value which the land has for its particular use according to
 9   the standards provided in section 2122.
10      Section 2103.   Powers of Department.--(a)    The department may
11   adopt and enforce rules and regulations for the just
12   administration of this article.
13      (b)   The department shall have complete supervision of the
14   making of appraisements, the allowance of deductions and the
15   assessment of tax, including, but not limited to, the power to
16   regulate the actions of registers in the allowance and
17   disallowance of deductions and assessment of tax. The
18   department's supervision of the making of appraisements includes
19   the employment and compensation of investigators, appraisers and
20   expert appraisers. The compensation of investigators, appraisers
21   and expert appraisers shall be paid from the inheritance tax
22   collections in the respective counties.
23      (c)   The department shall, in the event that the register
24   fails to take the necessary proceedings in connection with the
25   appraisement, allowance of deductions, assessment of tax or
26   collection of tax, have all the powers vested in the register in
27   this article and, at its option, may take the necessary action
28   and shall charge to the register and deduct from any commissions
29   or fees otherwise due him all costs and expenses incurred by the
30   department in connection with the proceedings.

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 1                                  PART II
 2                          TRANSFERS SUBJECT TO TAX
 3      Section 2106.    Imposition of Tax.--An inheritance tax for the
 4   use of the Commonwealth is imposed upon every transfer subject
 5   to tax under this article at the rates specified in section
 6   2116.
 7      Section 2107.    Transfers Subject to Tax.--(a)   The transfers
 8   enumerated in this section are subject to the tax imposed by
 9   section 2106.
10      (b)   All transfers of property by will, by the intestate laws
11   of this Commonwealth or, in the case of a transfer from a
12   nonresident, by the laws of succession of another jurisdiction
13   are subject to tax. The transfer of property of a person
14   determined by decree of a court of competent jurisdiction to be
15   a presumed decedent is subject to tax within the meaning of this
16   section and section 2108.
17      (c)   (1)    All transfers of property specified in subclauses
18   (3) through (7) which are made by a resident or a nonresident
19   during his lifetime are subject to tax to the extent that they
20   are made without valuable and adequate consideration in money or
21   money's worth at the time of transfer.
22      (2)   When the decedent retained or reserved an interest or
23   power with respect to only a part of the property transferred,
24   in consequence of which a tax is imposed under subclauses (4)
25   through (7), the amount of the taxable transfer is only the
26   value of that portion of the property transferred which is
27   subject to the retained or reserved interest or power.
28      (3)   A transfer conforming to subclause (1) and made within
29   one year of the death of the transferor is subject to tax only
30   to the extent that the value at the time of the transfer or

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 1   transfers in the aggregate to or for the benefit of the
 2   transferee exceeds three thousand dollars ($3,000) during any
 3   calendar year.
 4      (4)   A transfer conforming to subclause (1) which takes
 5   effect in possession or enjoyment at or after the death of the
 6   transferor and under which the transferor has retained a
 7   reversionary interest in the property, the value of which
 8   interest immediately before the death of the transferor exceeds
 9   five per cent of the value of the property transferred, is
10   subject to tax. The term "reversionary interest" includes a
11   possibility that property transferred may return to the
12   transferor or his estate or may be subject to a power of
13   disposition by him, but the term does not include a possibility
14   that the income alone from the property may return to him or
15   become subject to a power of disposition by him.
16      (5)   A transfer conforming to subclause (1), and under which
17   the transferor expressly or impliedly reserves for his life or
18   any period which does not in fact end before his death, the
19   possession or enjoyment of, or the right to the income from, the
20   property transferred, or the right, either alone or in
21   conjunction with any person not having an adverse interest, to
22   designate the persons who shall possess or enjoy the property
23   transferred or the income from the property, is subject to tax.
24      (6)   A transfer conforming to subclause (1), and under which
25   the transferee promises to make payments to, or for the benefit
26   of, the transferor or to care for the transferor during the
27   remainder of the transferor's life, is subject to tax.
28      (7)   A transfer conforming to subclause (1), and under which
29   the transferor has at his death, either in himself alone or in
30   conjunction with any person not having an adverse interest, a

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 1   power to alter, amend or revoke the interest of the beneficiary,
 2   is subject to tax. Similarly, the relinquishment of such a power
 3   within one year of the death of the transferor is a transfer
 4   subject to tax except as otherwise provided in subclause (3).
 5      (d)   All succeeding interests which follow the interest of a
 6   surviving spouse in a trust or similar arrangement, to the
 7   extent specified in section 2113, are transfers subject to tax
 8   as if the surviving spouse were the transferor.
 9      Section 2108.   Joint Tenancy.--(a)   When any property is held
10   in the names of two or more persons or is deposited in a
11   financial institution in the names of two or more persons so
12   that, upon the death of one of them, the survivor or survivors
13   have a right to the immediate ownership or possession and
14   enjoyment of the whole property, the accrual of such right, upon
15   the death of one of them, shall be deemed a transfer subject to
16   tax of a fractional portion of such property to be determined by
17   dividing the value of the whole property by the number of joint
18   tenants in existence immediately preceding the death of the
19   deceased joint tenant.
20      (b)   Except as provided in subsection (c), this section shall
21   not apply to property or interests in property passing by right
22   of survivorship to the survivor of husband and wife.
23      (c)   If the co-ownership was created within one year prior to
24   the death of the co-tenant, the entire interest transferred
25   shall be subject to tax only under, and to the extent stated in,
26   subsection (c)(3) of section 2107 as though a part of the estate
27   of the person who created the co-ownership.
28                                PART III
29                      TRANSFERS NOT SUBJECT TO TAX
30      Section 2111.   Transfers Not Subject to Tax.--(a)   The

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 1   transfers enumerated in this section are not subject to the tax
 2   imposed by this article.
 3      (b)   Transfers of property to or for the use of any of the
 4   following are exempt from inheritance tax:
 5      (1)   The United States of America.
 6      (2)   The Commonwealth of Pennsylvania.
 7      (3)   A political subdivision of the Commonwealth of
 8   Pennsylvania.
 9      (c)   Transfers of property to or for the use of any of the
10   following are exempt from inheritance tax:
11      (1)   Any corporation, unincorporated association or society
12   organized and operated exclusively for religious, charitable,
13   scientific, literary or educational purposes, including the
14   encouragement of art and the prevention of cruelty to children
15   or animals, no part of the net earnings of which inures to the
16   benefit of any private stockholder or individual and no
17   substantial part of the activities of which is carrying on
18   propaganda or otherwise attempting to influence legislation.
19      (2)   Any trustee or trustees or any fraternal society, order
20   or association operating under the lodge system, but only if the
21   property transferred is to be used by the trustee or trustees or
22   by the fraternal society, order or association exclusively for
23   religious, charitable, scientific, literary or educational
24   purposes or for the prevention of cruelty to children or
25   animals, and no substantial part of the activities of the
26   trustee or trustees or of the fraternal society, order or
27   association is carrying on propaganda or otherwise attempting to
28   influence legislation.
29      (3)   Any veterans' organization incorporated by act of
30   Congress or its departments or local chapters or posts, no part

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 1   of the net earnings of which inures to the benefit of any
 2   private shareholder or individual.
 3      (d)   All proceeds of insurance on the life of the decedent
 4   are exempt from inheritance tax. Refunds of unearned premiums
 5   for the current policy period and post mortem dividends shall be
 6   considered exempt proceeds.
 7      (e)   All proceeds of any Federal War Risk Insurance, National
 8   Service Life Insurance or similar governmental insurance are
 9   exempt from inheritance tax. Refunds of unearned premiums for
10   the current policy period and post mortem dividends shall be
11   considered exempt proceeds.
12      (f)   The pay and allowances determined by the United States
13   to be due a member of its armed forces for service in the
14   Vietnam conflict after August 5, 1964, for the period between
15   the date declared by it as the beginning of his missing-in-
16   action status to the date determined by it to be the date of his
17   death, are exempt from inheritance tax.
18      (g)   Inter vivos transfers as defined in subsection (c) of
19   section 2107 which might otherwise be subject to inheritance tax
20   are exempt where the transferee is a governmental body as
21   provided in subsection (b) or a charity as provided in
22   subsection (c).
23      (h)   Intangible personal property held by, for or for the
24   benefit of a decedent who, at the time of his death, was a
25   nonresident is exempt from inheritance tax.
26      (i)   A transfer made as an advancement of or on account of an
27   intestate share or in satisfaction or partial satisfaction of a
28   gift by will, but not within the meaning of subsection (c)(3) of
29   section 2107, is exempt from inheritance tax.
30      (j)   Adjusted service certificates issued under the act of

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 1   Congress of May 19, 1924, and adjusted service bonds issued
 2   under the act of Congress of January 27, 1936, are exempt from
 3   inheritance tax.
 4      (k)   Property subject to a power of appointment, whether or
 5   not the power is exercised, and notwithstanding any blending of
 6   such property with the property of the donee, is exempt from
 7   inheritance tax in the estate of the donee of the power of
 8   appointment.
 9      (l)   Property awarded to the Commonwealth as statutory heir
10   by escheat or without escheat, otherwise than as custodian for a
11   known distributee, is exempt from inheritance tax. Inheritance
12   tax shall be deducted at the applicable rate without interest
13   from any such exempt funds thereafter distributed by the
14   Commonwealth.
15      (m)   Property owned by husband and wife with right of
16   survivorship is exempt from inheritance tax. If the ownership
17   was created within the meaning of section 2107(c)(3), the entire
18   interest transferred shall be subject to tax under section
19   2107(c)(3) as though a part of the estate of the spouse who
20   created the co-ownership.
21      (n)   Property held in the name of a decedent who had no
22   beneficial interest in the property is exempt from inheritance
23   tax.
24      (o)   Obligations owing to the decedent which are worthless
25   immediately before death are exempt from inheritance tax
26   although collectible from the obligor's distributive share of
27   the estate.
28      (p)   The lump-sum death payment from the Social Security
29   Administration or Veterans' Administration or any county
30   veterans' death benefit or other similar death benefit, whether

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 1   or not paid to the decedent's estate, is exempt from inheritance
 2   tax.
 3      (q)   The lump-sum burial benefit from the United States
 4   Railroad Retirement Board, whether or not paid to the decedent's
 5   estate, is exempt from inheritance tax.
 6      (r)   Payments under pension, stock bonus, profit-sharing and
 7   other retirement plans, including H.R.10 plans, individual
 8   retirement accounts, individual retirement annuities and
 9   individual retirement bonds to distributees designated by the
10   decedent or designated in accordance with the terms of the plan,
11   are exempt from inheritance tax to the extent that the decedent
12   before his death did not otherwise have the right to possess
13   (including proprietary rights at termination of employment),
14   enjoy, assign or anticipate the payment made. In addition to
15   this exemption, whether or not the decedent possessed any of
16   these rights, the payments are exempt from inheritance tax to
17   the same extent that they are exempt from Federal estate tax
18   under the provisions of the Internal Revenue Code of 1986
19   (Public Law 99-514, 26 U.S.C. § 1 et seq.), as amended, any
20   supplement to the code or any similar provision in effect from
21   time to time for Federal estate tax purposes, except that a
22   payment which would otherwise be exempt for Federal estate tax
23   purposes if it had not been made in a lump-sum or other
24   nonexempt form of payment shall be exempt from inheritance tax
25   even though paid in a lump-sum or other form of payment. The
26   proceeds of life insurance otherwise exempt under subsection (d)
27   shall not be subject to inheritance tax because they are paid
28   under a pension, stock bonus, profit-sharing, H.R.10 or other
29   retirement plan.
30      (s)   A transfer of real estate devoted to the business of

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 1   agriculture to or for the benefit of members of the same family,
 2   provided that after the transfer the real estate continues to be
 3   devoted to the business of agriculture for a period of seven
 4   years beyond the transferor's date of death, the real estate
 5   derives a yearly gross income of at least two thousand dollars
 6   ($2,000) and the real estate is reported on a timely filed
 7   inheritance tax return, provided that:
 8      (1)     Any tract of land under this article which is no longer
 9   devoted to the business of agriculture within seven years beyond
10   the transferor's date of death or does not derive a yearly gross
11   income of at least two thousand dollars ($2,000) shall be
12   subject to inheritance tax due the Commonwealth under section
13   2107, in the amount that would have been paid or payable on the
14   basis of valuation authorized under section 2121 for nonexempt
15   transfers of property, plus interest thereon accruing as of the
16   transferor's date of death, at the rate established in section
17   2143.
18      (2)     Any tax imposed under section 2107 shall be a lien in
19   favor of the Commonwealth upon the property no longer being
20   devoted to the business of agriculture or which does not derive
21   a yearly gross income of at least two thousand dollars ($2,000),
22   as well as the personal obligation of the owner of the property
23   at the time of the event causing the property to fail to qualify
24   for exemption and all beneficiaries of any trust that is an
25   owner of the property. Liability for the tax shall be joint and
26   several.
27      (3)     Every owner of real estate exempt under this subsection
28   shall certify to the department on an annual basis that the land
29   qualifies for this exemption and shall notify the department
30   within thirty days of any transaction or occurrence causing the

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 1   real estate to fail to qualify for the exemption. Each year the
 2   department shall inform all owners of their obligation to
 3   provide an annual certification under this subclause. This
 4   certification and notification shall be completed in the form
 5   and manner as provided by the department.
 6      (s.1)    A transfer of an agricultural commodity, agricultural
 7   conservation easement, agricultural reserve, agricultural use
 8   property or a forest reserve, as those terms are defined in
 9   section 2122(a), to or for the benefit of lineal descendants or
10   siblings is exempt from inheritance tax, provided the foregoing
11   property is reported on a timely filed inheritance tax return.
12      (t)    A qualified family-owned business. The following shall
13   apply:
14      (1)    A transfer of a qualified family-owned business interest
15   to or for the benefit of members of the same family is exempt
16   from inheritance tax if the qualified family-owned business
17   interest:
18      (i)    continues to be owned by members of the same family or a
19   trust whose beneficiaries are comprised solely of members of the
20   same family for a minimum of seven years after the decedent's
21   date of death; and
22      (ii)     is reported on a timely filed inheritance tax return.
23      (2)    A qualified family-owned business interest that was
24   exempted from inheritance tax under this subsection that is no
25   longer owned by members of the same family or a trust whose
26   beneficiaries are comprised solely of members of the same family
27   at any time within seven years after the decedent's date of
28   death shall be subject to inheritance tax due the Commonwealth
29   under section 2107, in an amount equal to the inheritance tax
30   that would have been paid or payable on the value of the

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 1   qualified family-owned business interest using the valuation
 2   authorized under section 2121 for nonexempt transfers of
 3   property. Interest shall accrue from the payment date
 4   established under section 2142 at the rate established under
 5   section 2143.
 6      (2.1)    The exemption under this subsection shall not apply to
 7   property transferred by the decedent into the qualified family-
 8   owned business within one year of the death of the decedent
 9   unless the property was transferred for a legitimate business
10   purpose.
11      (3)     Inheritance tax due under section 2107 as a result of
12   disqualification under paragraphs (2) or (4), plus interest on
13   the inheritance tax, shall be a lien in favor of the
14   Commonwealth on the real and personal property of the owner of
15   the qualified family-owned business interest at the time of the
16   transaction or occurrence that disqualified the qualified
17   family-owned business interest from the exemption provided under
18   this subsection. The inheritance tax due and interest shall be
19   the personal obligation of the owner of the qualified family-
20   owned business interest at the time of the transaction or
21   occurrence that disqualified the qualified family-owned business
22   interest from the exemption provided under this subsection and
23   all beneficiaries of any trust that is an owner of the qualified
24   family-owned business interest. Liability for the tax shall be
25   joint and several. The lien shall remain until the inheritance
26   tax and accrued interest are paid in full.
27      (4)     Each owner of a qualified family-owned business interest
28   exempted from inheritance tax under this subsection shall
29   certify to the department, on an annual basis, for seven years
30   after the decedent's date of death, that the qualified family-

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 1   owned business interest continues to be owned by members of the
 2   same family or a trust whose beneficiaries are comprised solely
 3   of members of the same family and shall notify the department
 4   within thirty days of any transaction or occurrence causing the
 5   qualified family-owned business interest to fail to qualify for
 6   the exemption. Each year, the department shall inform all owners
 7   of a qualified family-owned business interest exempted from
 8   inheritance tax under this subsection of their obligation to
 9   provide an annual certification under this paragraph. The
10   certification and notification shall be completed in the form
11   and manner as provided by the department. An owner's failure to
12   comply with the certification or notification requirements shall
13   result in the loss of the exemption, and the qualified family-
14   owned business interest shall be subject to inheritance tax due
15   the Commonwealth under section 2107, in an amount equal to the
16   inheritance tax that would have been paid or payable on the
17   value of the qualified family-owned business interest using the
18   valuation authorized under section 2121 for nonexempt transfers
19   of property. Interest shall accrue from the payment date
20   established in section 2142 at the rate established in section
21   2143.
22      (5)   For purposes of this subsection, the term "qualified
23   family-owned business interest" shall be as follows:
24      (i)   an interest as a proprietor in a trade or business
25   carried on as a proprietorship, if the proprietorship has fewer
26   than fifty full-time equivalent employees as of the date of the
27   decedent's death, the proprietorship has a net book value of
28   assets totaling less than five million dollars ($5,000,000) as
29   of the date of the decedent's death and has been in existence
30   for five years prior to the date of the decedent's death; or

20250HB2066PN2649                  - 17 -
 1         (ii)    an interest in an entity carrying on a trade or
 2   business, if:
 3         (A)    the entity has fewer than fifty full-time equivalent
 4   employees as of the date of the decedent's death;
 5         (B)    the entity has a net book value of assets totaling less
 6   than five million dollars ($5,000,000) as of the date of the
 7   decedent's death;
 8         (C)    as of the date of the decedent's death, the entity is
 9   wholly owned by the decedent, by the decedent and members of the
10   same family, by a trust whose beneficiaries are comprised solely
11   of members of the same family or by an entity that is owned
12   solely by members of the same family;
13         (D)    the entity is engaged in a trade or business the
14   principal purpose of which is not the management of investments
15   or income-producing assets owned by the entity; and
16         (E)    the entity has been in existence for five years prior to
17   the decedent's date of death.
18         (u)    The transfer of personal property, whether tangible or
19   intangible, that is the result of a decedent military member.
20         (1)    For purposes of this subsection, the term "decedent
21   military member" shall mean an individual who, while serving in
22   the armed forces, a reserve component or the National Guard of
23   the United States, died as a result of injury or illness
24   received while on active duty, including active duty for
25   training.
26         (2)    The term shall include both Federal and State active
27   duty as evidenced by official activation order.
28         Section 2113.    Trusts and Similar Arrangements for Spouses.--
29   (a)    In the case of a transfer of property for the sole use of
30   the transferor's surviving spouse during the surviving spouse's

20250HB2066PN2649                      - 18 -
 1   entire lifetime, all succeeding interests which follow the
 2   interest of the surviving spouse shall not be subject to tax as
 3   transfers by the transferor if the transfer was made by a
 4   decedent dying on or after January 1, 1995, provided that the
 5   transferor's personal representative may elect, on a timely
 6   filed inheritance tax return, to have this section not apply to
 7   a trust or similar arrangement or portion of a trust or similar
 8   arrangement.
 9      (b)   Succeeding interests not subject to tax as transfers by
10   the transferor by reason of subsection (a) shall be deemed to be
11   transfers subject to tax by the surviving spouse of the property
12   held in the trust or similar arrangement at the death of the
13   surviving spouse. The tax on that property shall be based upon
14   its value at the death of the surviving spouse, the tax rates
15   applicable to dispositions by the surviving spouse or by the
16   transferor, whichever are lower, and any exemptions relating to
17   the kind or location of property held in the trust or similar
18   arrangement at the surviving spouse's death.
19      (c)   Subsection (b) shall apply even if the succeeding
20   interests not subject to tax as transfers by the transferor by
21   reason of subsection (a) were also not subject to tax by reason
22   of an exemption based upon the kind or location of property at
23   the transferor's death.
24      (d)   This section shall not apply to inter vivos transfers
25   otherwise exempt from inheritance tax.
26                                PART IV
27                              RATE OF TAX
28      Section 2116.   Inheritance Tax.--(a)   (1)   Inheritance tax
29   upon the transfer of property passing to or for the use of any
30   of the following shall be at the rate of four and one-half per

20250HB2066PN2649                  - 19 -
 1   cent:
 2      (i)    grandfather, grandmother, father, mother, except
 3   transfers under subclause (1.2), and lineal descendants; or
 4      (ii)     wife or widow and husband or widower of a child.
 5      (1.1)     Inheritance tax upon the transfer of property passing
 6   to or for the use of a husband or wife shall be:
 7      (i)    At the rate of three per cent for estates of decedents
 8   dying on or after July 1, 1994, and before January 1, 1995.
 9      (ii)     At a rate of zero per cent for estates of decedents
10   dying on or after January 1, 1995.
11      (1.2)     Inheritance tax upon the transfer of property from a
12   child twenty-one years of age or younger to or for the use of a
13   natural parent, an adoptive parent or a stepparent of the child
14   shall be at the rate of zero per cent.
15      (1.3)     Inheritance tax upon the transfer of property passing
16   to or for the use of a sibling shall be at the rate of twelve
17   per cent.
18      (1.4)     Inheritance tax upon the transfer of property to or
19   for the use of a child twenty-one years of age or younger from a
20   natural parent, an adoptive parent or a stepparent of the child
21   shall be at the rate of zero per cent.
22      (2)    Inheritance tax upon the transfer of property passing to
23   or for the use of all persons other than those designated in
24   subclause (1), (1.1), (1.2), (1.3) or (1.4) or exempt under
25   section 2111(m) shall be at the rate of fifteen per cent.
26      (3)    When property passes to or for the use of a husband and
27   wife with right of survivorship, one of whom is taxable at a
28   rate lower than the other, the lower rate of tax shall be
29   applied to the entire interest.
30      (b)    (1)   When the decedent was a resident, the tax shall be

20250HB2066PN2649                    - 20 -
 1   computed upon the value of the property, in excess of the
 2   deductions specified in Part VI, at the rates in effect at the
 3   transferor's death.
 4      (2)   When the decedent was a nonresident, the tax shall be
 5   computed upon the value of real property and tangible personal
 6   property having its situs in this Commonwealth, in excess of
 7   unpaid property taxes assessed on the property and any
 8   indebtedness for which it is liened, mortgaged or pledged, at
 9   the rates in effect at the transferor's death. The person liable
10   to make the return under section 2136 may elect to have the tax
11   computed as if the decedent was a resident and his entire estate
12   was property having its situs in this Commonwealth, and the tax
13   due shall be the amount which bears the same ratio to the tax
14   thus computed as the real property and tangible personal
15   property located in this Commonwealth bears to the entire estate
16   of the decedent.
17      (b.1)   The inheritance tax due upon the transfer of property
18   passing to or for the use of a husband or wife shall be the
19   lesser of the tax imposed under subsection (a)(1.1) or the tax
20   due after the allowance of the credit provided for under section
21   2112.
22      (c)   When any person entitled to a distributive share of an
23   estate, whether under an inter vivos trust, a will or the
24   intestate law, renounces his right to receive the distributive
25   share receiving therefor no consideration, or exercises his
26   elective rights under 20 Pa.C.S. Ch. 22 (relating to elective
27   share of surviving spouse) receiving therefor no consideration
28   other than the interest in assets passing to him as the electing
29   spouse, the tax shall be computed as though the persons who
30   benefit by such renunciation or election were originally

20250HB2066PN2649                  - 21 -
 1   designated to be the distributees, conditioned upon an
 2   adjudication or decree of distribution expressly confirming
 3   distribution to such distributees. The renunciation shall be
 4   made within nine months after the death of the decedent. In the
 5   case of a surviving spouse taking his elective share of an
 6   estate, the renunciation shall be made within the time for
 7   election and any extension thereof under 20 Pa.C.S. § 2210(b)
 8   (relating to procedure for election; time limit). Notice of the
 9   filing of the account and of its call for audit or confirmation
10   shall include notice of the renunciation or election to the
11   department. When an unconditional vesting of a future interest
12   does not occur at the decedent's death, the renunciation
13   specified in this subsection of the future interest may be made
14   within three months after the occurrence of the event or
15   contingency which resolves the vesting of the interest in
16   possession and enjoyment.
17      (d)   In case of a compromise of a dispute regarding rights
18   and interests of transferees, made in good faith, the tax shall
19   be computed as though the persons so receiving distribution were
20   originally entitled to it as transferees of the property
21   received in the compromise, conditioned upon an adjudication or
22   decree of distribution expressly confirming distribution to such
23   distributees. Notice of the filing of the account and of its
24   call for audit or confirmation shall include notice to the
25   department.
26      (e)   If the rate of tax which will be applicable when an
27   interest vests in possession and enjoyment cannot be established
28   with certainty, the department, after consideration of relevant
29   actuarial factors, valuations and other pertinent circumstances,
30   may enter into an agreement with the person responsible for

20250HB2066PN2649                  - 22 -
 1   payment to establish a specified amount of tax which, when paid
 2   within sixty days after the agreement, shall constitute full
 3   payment of all tax otherwise due upon such transfer. Rights of
 4   withdrawal of a surviving spouse not exercised within nine
 5   months of the transferor's death shall be ignored in making such
 6   calculations.
 7      (f)   Property subject to a power of appointment, whether or
 8   not the power is exercised and notwithstanding any blending of
 9   the property with the property of the donee, shall be taxed only
10   as part of the estate of the donor.
11      Section 2117.   Estate Tax.--(a)    In the event that a Federal
12   estate tax is payable to the Federal Government on the transfer
13   of the taxable estate of a decedent who was a resident of this
14   Commonwealth at the time of his death, and the inheritance tax,
15   if any, actually paid to the Commonwealth by reason of the death
16   of the decedent (disregarding interest or the amount of any
17   discount allowed under section 2142) is less than the maximum
18   credit for State death taxes allowable under section 2011 of the
19   Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §
20   2011), a tax equal to the difference is imposed. If a resident
21   decedent owned or had an interest in real property or tangible
22   personal property having a situs in another state, the tax so
23   imposed shall be reduced by the greater of:
24      (1)   the amount of death taxes actually paid to the other
25   state with respect to the estate of the decedent, excluding any
26   death tax expressly imposed to receive the benefit of the credit
27   for state death taxes allowed under section 2011 of the Internal
28   Revenue Code of 1986 (26 U.S.C. § 2011); or
29      (2)   an amount computed by multiplying the maximum credit for
30   state death taxes allowable under section 2011 of the Internal

20250HB2066PN2649                  - 23 -
 1   Revenue Code of 1986 (26 U.S.C. § 2011) by a fraction, the
 2   numerator of which is the value of the real property and
 3   tangible personal property to the extent included in the
 4   decedent's gross estate for Federal estate tax purposes and
 5   having a situs in the other state and the denominator of which
 6   is the value of the decedent's gross estate for Federal estate
 7   tax purposes.
 8      (b)     In the event that a Federal estate tax is payable to the
 9   Federal Government on the transfer of the taxable estate of a
10   decedent who was not a resident of this Commonwealth at the time
11   of his death but who owned or had an interest in real property
12   or tangible personal property having a situs in this
13   Commonwealth, a tax is imposed in an amount computed by
14   multiplying the maximum credit for State death taxes allowable
15   under section 2011 of the Internal Revenue Code of 1986 (26
16   U.S.C. § 2011) by a fraction, the numerator of which is the
17   value of the real property and tangible personal property to the
18   extent included in the decedent's gross estate for Federal
19   estate tax purposes having a situs in this Commonwealth and the
20   denominator of which is the value of the decedent's gross estate
21   for Federal estate tax purposes, and deducting from that amount
22   the inheritance tax, if any, actually paid to the Commonwealth
23   (disregarding interest or the amount of any discount allowed
24   under section 2142).
25      (c)     When an inheritance tax is imposed after an estate tax
26   imposed under subsection (a) or (b) has been paid, the estate
27   tax paid shall be credited against any inheritance tax later
28   imposed.
29                                   PART V
30                                 VALUATION

20250HB2066PN2649                    - 24 -
 1      Section 2121.   Valuation.--(a)     Except as otherwise provided
 2   in this part, the valuation date shall be the date of the
 3   transferor's death. When the transfer was made during lifetime
 4   and was not in trust, the property transferred shall be valued
 5   at the transferor's death. When the transfer was to an inter
 6   vivos trust, the property to be valued shall be that comprising
 7   the portion of the trust, if any, which exists at the
 8   transferor's death and which portion is traceable from property
 9   the transfer of which is subject to tax under this article.
10      (b)   The value of a life interest shall be determined in
11   accordance with rules and regulations promulgated by the
12   department. Until the promulgation of rules and regulations to
13   the contrary, the regulations in effect for Federal estate tax
14   purposes shall apply.
15      (c)   The value of an interest for a term certain shall be
16   determined in accordance with rules and regulations promulgated
17   by the department. Until the promulgation of rules and
18   regulations to the contrary, the regulations in effect for
19   Federal estate tax purposes shall apply.
20      (d)   If an annuity or a life estate is terminated by the
21   death of the annuitant or life tenant or by the happening of a
22   contingency within nine months after the death of the
23   transferor, the value of the annuity or estate shall be the
24   value, at the date of the transferor's death, of the amount of
25   the annuity or income actually paid or payable to the annuitant
26   or life tenant during the period he was entitled to the annuity
27   or was in possession of the estate. If an appraisement of an
28   annuity or life estate has been filed before the termination,
29   the appraisement and any assessment based on the appraisement
30   shall be revised in accordance with this section upon request of

20250HB2066PN2649                  - 25 -
 1   any party in interest, including the Commonwealth and the
 2   personal representative, insofar as the appraisement and any
 3   assessment based on the appraisement relates to the valuation of
 4   the terminated annuity or life estate, without the necessity of
 5   the party in interest following any procedure described in Part
 6   XI.
 7         (e)   The value of a future interest shall be determined in
 8   accordance with rules and regulations promulgated by the
 9   department. Until the promulgation of rules and regulations to
10   the contrary, the regulations in effect for Federal estate tax
11   purposes shall apply.
12         (f)   When a decedent's property is subject, during his
13   lifetime and at the time of his death, to a binding option or
14   agreement to sell, the appraised value of the property shall not
15   exceed the amount of the established price payable for it
16   provided the option or agreement is a bona fide arrangement and
17   not a device to transfer the property for less than an adequate
18   and full consideration in money or money's worth. If the option
19   or agreement is not exercised and consummated, the value at
20   which the property is appraised shall not be limited to the
21   established price payable for the property, and it shall not
22   exceed the value of the property on the date of the transferor's
23   death. When tax has been assessed on the basis of an established
24   price and the option or agreement is not exercised and
25   consummated or an amount greater than the established price is
26   received for the property, the fiduciary or transferee shall
27   file a supplemental return reporting the facts.
28         Section 2122.   Valuation of Certain Farmland.--(a)   The
29   following words and phrases, when used in this section, shall
30   have the meaning ascribed to them in this section, except where

20250HB2066PN2649                     - 26 -
 1   the context clearly indicates a different meaning:
 2      "Agricultural commodity."    Any and all plant and animal
 3   products, including Christmas trees produced in this
 4   Commonwealth for commercial purposes.
 5      "Agricultural conservation easement."    As defined in section
 6   3 of the act of June 30, 1981 (P.L.128, No.43), known as the
 7   "Agricultural Area Security Law."
 8      "Agricultural reserve."    Noncommercial open space lands used
 9   for outdoor recreation or the enjoyment of scenic or natural
10   beauty and open to the public for such use, without charge or
11   fee, on a nondiscriminatory basis.
12      "Agricultural use."   Use of the land for the purpose of
13   producing an agricultural commodity or when devoted to and
14   meeting the requirements and qualifications for payments or
15   other compensation pursuant to a soil conservation program under
16   an agreement with an agency of the Federal Government.
17      "Forest reserve."   Land, ten acres or more, stocked by forest
18   trees of any size and capable of producing timber or other wood
19   products.
20      "Separation."   A division, by conveyance or other action of
21   the owner, of lands devoted to agricultural use, agricultural
22   reserve or forest reserve and preferentially assessed under the
23   provisions of this section into two or more tracts of land which
24   continue to be agricultural use, agricultural reserve or forest
25   reserve and all tracts so formed meet the requirements of
26   section 3 of the act of December 19, 1974 (P.L.973, No.319),
27   known as the "Pennsylvania Farmland and Forest Land Assessment
28   Act of 1974."
29      "Split-off."    A division, by conveyance or other action of
30   the owner, of lands devoted to agricultural use, agricultural

20250HB2066PN2649                   - 27 -
 1   reserve or forest reserve and preferentially assessed under the
 2   provisions of this section into two or more tracts of land, the
 3   use of which on one or more of such tracts does not meet the
 4   requirements of section 3 of the act of December 19, 1974
 5   (P.L.973, No.319), known as the "Pennsylvania Farmland and
 6   Forest Land Assessment Act of 1974."
 7        (b)    (1)   The value for transfer inheritance tax purposes of
 8   land or an interest in land which is owned by a decedent and
 9   devoted to agricultural use, agricultural reserve or forest
10   reserve shall be that value which such land has for its
11   particular use if it also meets the following conditions:
12        (i)    in the case of land devoted to agricultural use, the
13   land was devoted to such agricultural use for the three years
14   preceding the death of such decedent and is not less than ten
15   contiguous acres in area or has an anticipated yearly gross
16   income derived from agricultural use of two thousand dollars
17   ($2,000);
18        (ii)    in the case of land devoted to agricultural reserve,
19   the land is not less than ten contiguous acres in area;
20        (iii)    in the case of land presently devoted to forest
21   reserve, the land is not less than ten contiguous acres in area;
22   or
23        (iv)    the contiguous tract of land for which application is
24   made is not less than the entire contiguous area of the owner
25   used for agricultural use, agricultural reserve or forest
26   reserve purposes.
27        (2)    In determining the value of land in agricultural use,
28   agricultural reserve or forest reserve for its particular use,
29   consideration shall be given to available evidence of such
30   land's capability for its particular use as derived from the

20250HB2066PN2649                      - 28 -
 1   soil survey at The Pennsylvania State University, the National
 2   Cooperative Soil Survey, the United States Census of
 3   Agricultural Categories of land use classes and other evidence
 4   of the capability of the land devoted to such use and also, if
 5   the land is assessed under the provisions of the "Pennsylvania
 6   Farmland and Forest Land Assessment Act of 1974," to the
 7   valuation determined by the local county assessor thereunder.
 8      (c)   (1)   If any tract of land in agricultural use,
 9   agricultural reserve or forest reserve, which is valued for
10   inheritance tax purposes under the provisions of this part, is
11   applied to a use other than agricultural use, agricultural
12   reserve or forest reserve or for any other reason, except
13   condemnation thereof, is removed from the category of land
14   preferentially valued under this part within seven years
15   following the death of such decedent, the owner at such time the
16   land is so removed shall be subject and liable to tax due the
17   Commonwealth in an amount equal to the difference, if any,
18   between the taxes paid or payable on the basis of the valuation
19   authorized under this section and the taxes that would have been
20   paid or payable had that land been valued and taxed on the basis
21   of its market value at the death of the decedent, plus interest
22   thereon for the period from the date of death to the change of
23   use at the rate established in section 2143.
24      (2)   The tax shall be a lien upon the property in favor of
25   the Commonwealth, collectible in the manner provided by law for
26   the collection of delinquent real estate taxes, as well as the
27   personal obligation of the owner at the time of such change of
28   use. The tax shall become due on the date of change of use.
29      (3)   Every owner of land preferentially valued under this
30   section shall notify the register of wills of the county or

20250HB2066PN2649                   - 29 -
 1   counties in which the land is located of any change or proposed
 2   change in the use of the land. Any owner failing to make
 3   notification commits a misdemeanor of the third degree.
 4      (d)   (1)   The split-off of a part of the land which has been
 5   valued, assessed and taxed under this article for a use other
 6   than agricultural use, agricultural reserve or forest reserve
 7   within the seven-year period provided for by subsection (c)
 8   shall, except when the split-off occurs through condemnation,
 9   subject the land divided and the entire parcel from which the
10   land was divided to liability for taxes as otherwise set forth
11   in this article except as provided in subclause (2).
12      (2)   The owner of property subject to a preferential tax
13   assessment may split off land covered by the preferential tax
14   assessment within the seven-year period. The tract of land so
15   split-off shall not exceed two acres annually and may only be
16   used for residential use, agricultural use, agricultural reserve
17   or forest reserve and the construction of a residential dwelling
18   to be occupied by the person to whom the land is transferred.
19   The total parcel or parcels of land split-off under the
20   provisions of this subsection shall not exceed ten per cent or
21   ten acres, whichever is less, of the entire tract subject to the
22   preferential tax assessment. The split-off of a parcel of land
23   which meets the requirements of this subsection shall not
24   invalidate the preferential tax assessment if it continues to
25   meet the requirements of subsection (b).
26      (3)   The owner of property subject to a preferential use
27   assessment may separate land covered by the preferential use
28   assessment. The separation shall not invalidate the preferential
29   tax assessment unless a subsequent abandonment of preferential
30   use occurs within seven years of the separation. The abandonment

20250HB2066PN2649                   - 30 -
 1   shall subject the entire tract of land separated to liability
 2   for taxes, which are to be paid by the person changing the use,
 3   as set forth in this article.
 4      (4)   When property subject to preferential tax assessment is
 5   separated among the beneficiaries taxed under subsection (a)(1)
 6   of section 2116, a subsequent change within the seven-year
 7   period provided for in subsection (b) in the use of one
 8   beneficiary's portion of the property shall subject only that
 9   tract held by the beneficiary who changes the use to liability
10   under this article.
11      (e)   The value for transfer inheritance tax purposes of land
12   or an interest in land which is part of an agricultural
13   conservation easement shall be at fifty per cent of the value
14   otherwise determined under this section.
15                                PART VI
16                               DEDUCTIONS
17      Section 2126.   Deductions Generally.--The only deductions
18   from the value of the property transferred shall be those set
19   forth in this part. Except as otherwise provided in this
20   article, they shall be deductible regardless of whether or not
21   assets comprising the decedent's taxable estate are employed in
22   the payment or discharge of the deductible items. When a tax is
23   imposed upon a transfer described in subsection (c) of section
24   2107 and section 2108, the deductions shall be allowed to the
25   transferee only to the extent that the transferee has actually
26   paid the deductible items and either the transferee was legally
27   obligated to pay the deductible items or the estate subject to
28   administration by a personal representative is insufficient to
29   pay the deductible items.
30      Section 2127.   Expenses.--The following expenses may be

20250HB2066PN2649                    - 31 -
 1   deducted from the value of the property transferred:
 2      (1)   Administration expenses. All reasonable expenses of
 3   administration of the decedent's estate and of the assets
 4   includable in the decedent's taxable estate are deductible.
 5      (2)   Bequest to fiduciary or attorney in lieu of fees. A
 6   transfer to an executor, trustee or attorney in lieu of
 7   compensation for services is deductible to the extent it does
 8   not exceed reasonable compensation for the services to be
 9   performed.
10      (3)   Family exemption. The family exemption is deductible.
11      (4)   Funeral and burial expenses. Reasonable and customary
12   funeral expenses, including the cost of a family burial lot or
13   other resting place, are deductible.
14      (5)   Tombstones and gravemarkers. Reasonable and customary
15   expenses for the purchase and erection of a monument, gravestone
16   or marker on decedent's burial l

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