2.1.3 Taxes on gifts

The term “taxes on gifts” is intended to cover all taxes levied on the wealth, property or assets of an individual which are the subject of a gratuitous inter vivos transfer, whether such taxes are levied on the donor or the donee.1 I observe that states levy two types of taxes on gifts: gift taxes and income taxes on gifts. The taxable event of gift taxes is the enrichment of the donee who often becomes the liable person upon the receipt of the gift. Nevertheless, in some states, the tax is paid by the donor and not the donee. Furthermore, most states levy gift taxes in accordance with the same tables of rates as for inheritance taxes.2 As a result, the gift tax rates are often determined based on the size of the donation and the degree of kinship between the donor and the donee. Finally, I observe that states provide objective and subjective tax exemptions and/or tax-free allowances to donations. In many cases, these exemptions and allowances are the same as for inheritance tax purposes.

On the other hand, inter vivos income taxes on gifts often follow the income tax rules. As a result, the beneficiary is usually liable to pay the income tax on the received gift.