Home Constitutional Constraints Complete Auto Transit v. Brady

Complete Auto Transit v. Brady


Estate tax, also known as inheritance tax, is a tax imposed on the transfer of property from the deceased to the beneficiaries. The estate tax can be one of the most significant expenses for many families. In the United States, estate tax is levied by the federal government and some states. The tax rate is progressive, with rates ranging from 18% to 40%. Thankfully, there are a number of exemptions to estate tax that can help families reduce their tax burden. This article will discuss the exemptions to estate tax and help families understand how to take advantage of them.

Exemption on Spousal Transfers

One major exemption to estate tax applies to spousal transfers. When a husband or wife dies, their entire estate is transferred to the surviving spouse without incurring any estate taxes. The exemption is not limited to cash transfers but includes other property such as homes, investments, and other valuables. However, this exemption does not fully eliminate estate tax. The surviving spouse can only use their share of the unified estate tax credit to exempt a certain amount of their estate from tax liability.

Unified Estate Tax Credit

The unified estate tax credit serves as a credit that can be applied against the estate tax for individuals and couples. This exemption helps to reduce the amount of estate tax that would otherwise be due. The unified estate tax credit was brought into effect under the Tax Cuts and Jobs Act, 2017 (TCJA). Under this act, the estate and gift tax exemption increased from $5.49 million in 2017 to $11.4 million for individuals and $22.8 million for married couples. These values are adjusted for inflation, and for 2021, the exemption stands at $11.7 million for individuals and $23.4 million for couples.

Portability of the Unified Estate Tax Credit

Portability of the unified estate tax credit is a feature that stands to benefit spouses in a more significant way. Before portability of the unified estate tax credit was introduced, married couples had to set up trusts or other arrangements to keep the exemption separate. With portability, a spouse can transfer any unused portion of their estate tax exemption to their surviving spouse. This allows the surviving spouse to have a higher exemption, allowing them to transfer more property without incurring any estate tax.

Charitable Contributions

Charitable contributions made during an individual’s lifetime or through their estate can be used to reduce the taxable value of their estate. By making charitable contributions, families can reduce the amount of estate tax they have to pay. One thing to keep in mind is that the charitable organization must be a qualified 501(c)(3) organization. The estate will also receive a tax deduction for the contribution.

Qualified Family-owned Business Interest (QFOBI) Deduction

This exemption applies to families who own businesses that have been passed down from generation to generation. A Qualified Family-owned Business Interest (QFOBI) deduction is a deduction an estate can claim for a portion of the value of a family-owned business. To qualify, the family member who owns the business must have at least a 50% interest in the business prior to death. Additionally, the business must have been in existence for five years and must continue to exist for another five years after the owner’s death. The maximum deduction allowed is $1.58 million.

Exemption on Life Insurance Proceeds

Life insurance is a popular way for people to ensure that their loved ones are taken care of after they pass away. Most people are not aware that life insurance proceeds are generally income tax-free, and estate tax-free under certain circumstances. The IRS does not include the proceeds of a life insurance policy in the calculation of an estate’s gross value, as long as the policy was not owned by the decedent at their time of death. If the policy is owned by the decedent, the proceeds are included in their taxable estate. One way to avoid this scenario is by transferring ownership of the policy to a loved one, an irrevocable trust or a business entity hence avoiding being part of an estate.

State Estate Tax Exemptions

Finally, some states have their estate tax, separate from the federal estate tax. The estate taxes in these states come in the form of estate taxes, inheritance taxes, or both. California, Tennessee, Florida, and Nevada, among others, have no state estate taxes. New Jersey and Oregon have some of the highest state estate tax rates in the country which starts from 14.8% to 16%. State estate taxes usually have lower exemption thresholds than the federal exemption. Review referring to the relevant state government from time to time is crucial to keep the tax planning updated with the latest changes.


In conclusion, estate tax can be a significant expense for many families. However, by taking advantage of the exemptions discussed above, families can reduce their tax burden. Portability of the unified estate tax credit and qualified family-owned business interest deductions are just two examples of the exemptions that can be used to reduce the taxable value of an estate. Additionally, families should seek to understand state estate tax laws as these taxes come on top of the federal estate tax when applicable. By working with tax planning professionals, families can better understand the exemptions available to them and develop a plan that will help them minimize estate tax liability.

Complete Auto Transit was a company that transported vehicles between states. Mississippi was one state that the company travelled through, and one in which they delivered vehicles. Mississippi levied a tax on Complete Auto Transit because they were taking part in interstate and intrastate transit. The tax was based on the “privilege of doing business in the state.”

Complete Auto Transit was based in Michigan and was obviously conducting interstate business. However, they disagreed with the tax and took the case to court. Complete Auto Transit v. Brady, included a ruling that would change interstate and intrastate transit forever. The courts ruled that companies that conducted business in more than one state, should be responsible for a portion of each state’s tax burden.

Complete Auto Transit v. Brady set a precedent for other states to begin charging a similar tax.  However, it has been claimed that  the decision in Complete Auto Transit v. Brady, may violate the Commerce clause because of the tax on interstate activity.  Similar taxes are continuously challenged in courts. Many companies insist that those taxes are not allowed because of the Commerce Clause. In fact, those taxes may discourage companies from conducting business in more than one state.

The ruling in Complete Auto Transit v. Brady, laid out specific rules for taxes on interstate commerce. Business conducted must be connected to the state that is imposing the tax. In other words, the tax can not be imposed on business conducted in another state.Those taxes must be fair and apply to all business in the same manner. The taxes must not discriminate against any type of company, or individual.

Complete Auto Transit v. Brady, demonstrated the ambiguity of the Commerce Clause. The clause can be interpreted in number of ways, in order to benefit the individual that is interpreting the clause. In this case, Mississippi claimed that they were simply imposing a sales tax. However, it was seen by many, including the company, as a privilege tax, imposed simply for having the privilege of doing business in that state. A similar ruling was seen in Commonwealth Edison v. Montana. In both cases, the courts ruled that companies doing business in any state, would be responsible for a portion of the tax burden because they received services from that state, such as police protection. Contributing to a state,s tax burden, is meant to finance any benefits a company received while conducting business in that specific state.