Statement for the Record
Ryan Cummins, Adjunct Scholar
Indiana Senate Committee on Tax and Fiscal Policy
February 8, 2011
Senator Banks and members of the committee:
I am pleased to submit the following remarks regarding my experience dealing with inheritance tax, steps we had to take as a business, and the ramifications of these actions.
My name is Ryan Cummins. I am the owner of a small business in Terre Haute called The Apple House, Inc. We are a home and garden center selling horticultural products to the general public. In business since 1939, my business is in the third generation. I am in business with my brother. Our business employs 18 to 25 persons both full and part time. We normally expand to 50 or more employees in the spring, when our business volume is highest.
I believe the moral argument for elimination of an inheritance tax, based as it is on envy and jealousy, is the most powerful one for taking such action. My comments today, however, will focus on the real and pragmatic issues my family and my business are confronted with when dealing with this onerous burden.
Twenty-one years ago, my father turned 65 and we all realized it was time to make plans for the next generation, if this business was to remain viable. While buying the business and taking care of these details needed to be addressed, dealing with inheritance tax was the main driver of the plans we had to pursue. Due to the potential burden and complexity of the tax regulations, it was necessary to engage attorneys, accountants, appraisers, and insurance professionals to craft a plan that would allow for succession and continuation of our business without incurring tax liabilities that would threaten the existence of our family business built over the last half century.
At the time, we spent close to $10,000 in accomplishing our initial planning. The plan required purchase of significant amounts of life insurance to fund a potential tax liability, amounting to $7,000 per year in premiums, before the policy dividends covered the premiums. In addition, due to certain provisions in the inheritance tax laws and our family structure, we were best served by creating present interest trusts for each of me and my brother’s children. These trusts generate accounting and filing costs that have amounted to over $12,000 in the past two decades.
While these dollar costs are substantial, there is another area which we have been required, because of the inheritance tax, to spend even more. The time required to meet with lawyers, accountants, insurance agents, financial advisors, and amongst ourselves to make decisions involved hundreds of hours in total.
The real costs of all this money, time, and effort have been borne by my family and our business. In economics, the concept of opportunity cost (the cost of the next best opportunity foregone) makes clear what we have lost to the inheritance tax before a single dime of it was even paid.
The thousands of dollars paid initially and over the last twenty-one years could have, and certainly would have, been invested into the business instead. We needed to make investments in equipment, procedures, training and more that would have made us more productive and more competitive. A substantial sum of this money could have paid for a new heavy truck. As it is, our heavy truck is 20 years old with 700,000 miles on it. I could have paid for a new forklift. As it is, our 15 year old spare forklift just put a rod through the engine block. It remains to be seen how these particular equipment problems will affect our business and our employees, but it is likely to add to the challenges both face.
The hundreds of hours spent by my father, my brother, and myself would have been used providing even better service to our customers, the lifeblood of ours or any business. It would have been used finding more and better suppliers of our plants and garden products. It would have been used searching for additional qualified staff to help our business prosper.
The chance to use this money and this time as we would have chosen was foregone due to the existence of inheritance tax. The money and time that would have added to the potential prosperity of our business and those who work with us was instead intercepted and, in my opinion, squandered in the name of envy and jealousy.
I am in my mid-50’s and it is time for me to begin this same process all over again. It frustrates me to know how much money and time I will be forced to spend in order for the next generation to at least have a chance in this family business. Without the existence of inheritance tax, it would be unnecessary to expend nearly as much to achieve this goal.
My business is just one little place in one city in Indiana. It is worth noting that within a mile of my business is a foundry, an independent grocery store, a machine shop, a car dealership, and more than a dozen others that are all small family businesses. I know almost all these business owners and I know that each one of them dealt with this issue in a similar fashion. If it is true in one small area of my city, just think how many times this story is repeated all over our state. Now think of all the money and time that would have gone into reinvesting in all those businesses across the state and the jobs and opportunity that would have been created.
In every political campaign, every candidate will talk about the desire, the necessity of creating jobs. Here is a way to do it. It is a shame that we continue forcing these actions and expenditures on family businesses and I urge you to take action now to get off the backs, get out of the wallets, and get out of the way of these Hoosier business owners.
I thank you for your time and would be happy to answer any questions regarding my comments or experiences.
Note: Corroborating testimony is available from the American Family Business Institute here.