I would like to thank Chairman Gibbs, Ranking Member Foley and members of the House Ways and Means Committee for the opportunity to testify before you today. My name is Thomas C. Pitrone and I am a principal of the Integrity Group, a financial planning practice I started with my father, Frank P. Pitrone, CLU. Since we started our business in 1983, we have worked to guide individuals through the complexities of the tax code while finding the most intelligent ways for our clients to plan for their future. Overall, I have been active in estate, succession and investment planning for small businesses for over twenty-five years.

I also come before the Committee today as the representative of the Ohio Small Business Council, the small business division of the Ohio Chamber of Commerce

The Ohio Small Business Council (OSBC) is solely devoted to representing the unique concerns of the small business members of the Ohio Chamber of Commerce. Chamber members with fewer than 400 employees are automatically enrolled as OSBC members. The OSBC’s activities are led by a governing board comprised of small business owners, in a wide range of industries, from across Ohio.

OSBC also works to promote and protect the establishment, growth and vitality of small business in Ohio by supporting legislative and governmental actions that encourage small business development. OSBC reviews pending legislation that impacts small business operations and communicates the small business viewpoint to Ohio’s policymakers.

I also represent COSE, The Council of Smaller Enterprises that represents over 17,000 small businesses in Northeast Ohio. Over 75% of our members have 1 – 9 employees.

We are here today to discuss the impact of the Ohio Estate Tax on smaller estates in Ohio. Most people think of an estate tax as merely a concern of the wealthy. But that is not the case. As you know, the estate tax hits Ohioans that die with a net worth in excess of $338,333. The price of the average home in Ohio, particularly in the urban areas, is high enough to account for about half of the exempt amount. An IRA or qualified plan and a CD (certificate of deposit) can easily put a person into the taxable estate range.

As a financial planner, I work with small business owners but the bulk of my practice is with the middle-market family. They are saving for retirement, or if they’ve reached retirement age, they are planning the best way to take their retirement income. Most are seeking advice on how to maximize investment returns and reduce their tax liability. All of these folks will be liable for the Ohio Estate Tax. About 38% of all the taxes Ohio collects on estates comes form folks with less than $1,000,000 in taxable estate assets.

Many of these people are not business owners. They are what I call successful savers. They are typically a two income family that have lived frugally and saved prudently. They live in a nice but modest home. They do not drive expensive cars. They eat out often but not at expensive restaurants. They have amassed a nest egg that will provide for them in retirement. They have played by the rules and paid their bills and taxes on time.

As part of the review I provide, we talk about providing for possible long-term care in a nursing home, avoiding the tax on their Social Security and estate taxes - Federal and Ohio’s. It is always surprising to me, the number of people for whom the idea of an estate tax is shocking. “You’re kidding!” is a common reaction when I explain the liability.

The first response is usually resentment. The Ohio Estate Tax, even more than the federal estate tax, is a death tax. One is liable simply because one has died. There’s no other purpose, reason or explanation. Why the state and your political sub-division have rights to part of your assets at your death is never explained.

One of the worst aspects of the system is that assets that are usually exempt from the tax, such as life insurance, become taxable if small mistakes are made in one’s distribution plan. If my beneficiary designations are not current and my life insurance policy has to be probated, it is subject to the 7% levy. That is a pretty big charge for distributing an asset.

“What do rich people do?” is the common question. The range of adjustments one can make to one’s financial plan to avoid or mitigate the estate tax is limited. One of them is to move from Ohio to a state with no estate tax and sever all financial and ownership ties with Ohio.

A $20,000 Ohio Estate tax liability will not motivate folks to move from Ohio. However, they may be thinking about moving already. Many of these folks have second homes in other states. But a person with a $200,000 potential Ohio Estate Tax liability must certainly consider leaving Ohio for tax reasons alone.

The supply of folks with estates worth more than $1,000,000 is not inexhaustible. Other states, not just Florida, are competing with us to attract successful savers as well as small business owners. What are we doing to attract them to Ohio?

When one of my clients asks what is the next step in the “escape the Ohio estate tax” process, we take them through a comparison of Ohio’s tax regimen versus their target state. If they are still interested in proceeding, we explain the need to sever all ties with Ohio and limit the time they spend in the state.

Once a person starts to ask these questions, I have never seen one who did not decide to take the next step. They all leave Ohio.

If you want to know where most Ohioans move to, look at law firm and accounting firm websites. You will see that most tax and legal practitioners are licensed in Ohio and Florida. Georgia and Arizona are also very popular states for former Ohio residents. I am licensed in Florida and Georgia as well as Ohio.

The members of this Committee, and all members of the House, are probably acquaintanced with the type of people I’m describing - Middle-aged or older with more than average discretionary income. So, I would be surprised if each of the members of the Committees did not know someone that has left Ohio for a state with a more favorable tax regimen.

When we lose these people, we are losing more than their estate tax dollars. More than their income tax and sales tax too. We are losing friends. We are losing their knowledge, experience, creativity, and time. These are things we probably can not replace with money. I hope the Committee will consider these facts when deciding on the elimination of the Ohio Estate Tax.

Thank you again for the opportunity to testify before this Committee. I am happy to entertain questions.