Inheritance Tax - Indiana's First (Major) Tax

July 25, 2016

Prior to the 1930s, taxation in Indiana occurred mostly at the local level.

Property tax was the primary means for government to generate revenue in the state’s early years. Tolls were another form of taxation; fees were charged to use the Wabash and Erie Canal.

Inheritance tax was the first major statewide tax. Indiana passed legislation to collect an inheritance tax in 1913, which is the same year Congress amended the U.S. Constitution to allow the federal government to collect income tax.

In Indiana, the inheritance tax permitted the state to tax real and personal property transferred to relatives at the time of the family member’s death.

Indiana was one of the last northern states to enact the tax. Attempts to pass the legislation failed multiple times before it passed in 1913.

Indiana’s neighbors already had proven the tax was a successful means to generate revenue. According to the May 1913 edition of American Political Science Review, Illinois and Massachusetts collected $2.5 million annually, which would equate to more than $60 million today.

Indiana’s 1913 inheritance tax law based rates on the relationship of the heir to the deceased, as well as the value of the property being transferred. For example, a direct descendant could expect to pay a rate of 1.5 percent on property valued at $25,000 or less, whereas more distant relatives would be charged 5 percent.

The law granted a $10,000 exemption to a widow and $2,000 to direct descendants. Organizations that would be considered nonprofits today – churches and charities – were not subject to the tax.

Over the years, state lawmakers amended the law multiple times. In 2012, nearly 100 years after its initial passage, the inheritance tax was repealed. Heirs no longer owe tax on real estate and personal property they inherited from a relative who died after Dec. 31, 2012.

For more information about Indiana’s inheritance tax, visit