Congress, reacting to a mixture of changing social attitudes and revenue shortages brought on by the tariff reductions of WWI, passed the Revenue Act of 1916 establishing the modern estate tax. The evolution of the estate tax has had a devastating impact on America's family-owned small businesses.

Federal Estate or "Death" Tax

• Family-owned businesses bear the brunt of death taxes.
  The majority of automobile dealers are family-owned businesses, some of which have been in the family for generations. Upon the death of the dealer principal, surviving heirs, even if they have worked in the business for years, must pay death taxes of up to 55 percent of the estate's total value -- in cash -- to the federal government. Because these taxes are unreasonably high, heirs often must sell the business, break it up or liquidate their assets just to cover the taxes.

• Fear diverts limited resources to protect family-owned businesses.
  Due to the fear that punitive estate taxes will require their children to liquidate a family-owned dealership, automobile dealers are required to divert significant time, energy, and financial resources from running their small business to devote to estate planning. In today's competitive business environment where small businesses are struggling to comply with local, state, and federal government regulations, these diverted resources could be better used to hire additional employees, buy new equipment, and expand business opportunities. Let small businesses allocate fewer resources to pay for accountants and lawyers and more on creating economic growth.

• Death taxes can be a death sentence for auto dealers.
  Paying the estate tax by selling off dealership assets is no guarantee that the business can continue to operate. As a franchised auto dealer, contractual arrangements with the manufacturer can require you to provide new cars, services, equipment, parts, etc. to the customer. An auto dealership is a full service operation with all parts of the business integrated. For those inheriting a dealership -- which in all likelihood would be taxed at the maximum 55 percent tax rate -- there are few assets of significant value that can be sold without adversely impacting the dealership.

• Current exemption provides little relief.
  State dealer franchise laws require dealers to maintain facilities, inventory and equipment that meet specific manufacturer standards. To satisfy these requirements, the average dealership could easily be valued in the millions of dollars. However, small margin businesses such as dealerships often fall into the "asset rich -- cash poor" category. Like most entrepreneurs dealers are heavily leveraged. Therefore, for purposes of calculating the estate tax, dealers can have an estate with an exceptionally high gross value. Dealers typically have a high percentage, some as much as 90 percent, of their dealership tied up in non-liquid assets such as inventory and dealership property. When the dealer principal passes away heirs often must pay a multi-million-dollar tax bill.