Eric Fruits, Ph.D., March, 2012
Economics International Corp. was engaged by Common Sense Policy Roundtable to examine the economic impacts associated with removing Colorado’s fiduciary tax on trusts.
While nearby states have no taxes on trusts, Colorado’s trust tax laws are unfavorable for setting up and managing trusts. Indeed, estate planners have been advised to avoid Colorado-based trustees. This is borne out by the following empirical observations:
- The state’s fiduciary tax has contributed to a decline in Colorado’s trust business. The number of trust accounts in Colorado has declined over the past decade with the state losing an average of approximately 500 accounts a year.
- Colorado is losing trust business to more competitive states. While Colorado’s business has seen a decline, the number of accounts in the rest of the US has been stable. As a result, Colorado’s share of the US trust industry has seen a decline from nearly 0.35 percent of the market to less than 0.20 percent.
- Eliminating the fiduciary tax would not noticeably affect the state budget. In 2010, the most recent year for which information is available, fiduciary tax collections accounted for only 10 cents of every $100 in total tax collections by the state.
Our analysis is based on the assumption that removing the tax would reverse the decline in the Colorado trust industry and boost growth in trust assets over the next decade. We employ a widely used model to calculate the impacts each year as Colorado trust assets are anticipated to grow. We also calculate the net fiscal impacts, with the following results after a decade.
- 9,370 to 21,965 more full- and part-time jobs.
- $1.65 billion to $3.87 billion in additional economic activity.
- $435 million to $1.03 billion in additional payroll and self-employment income.
- Eliminating the tax would “pay for itself” with increased tax collections relatively quickly.
Thus, if the state can attract sufficient trust assets by eliminating its fiduciary tax on trusts, the Colorado economy would experience improved employment and incomes over the next decade…