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Not so long ago, states were plugged into a money gusher: They could charge estate taxes without costing their taxpayers a dime -- the money came straight out of the federal treasury. The set up made states billions of dollars -- at least until 2001 when Congress passed the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), which put an end to one of the sweetest deals Washington ever gave state governments.

That deal, struck in 1926, worked like this: Every dollar (up to a point) that someone paid in state estate taxes would be a dollar they didn't have to pay in federal estate taxes. This one-for-one tax credit gave states a convenient way to raise money. But the 2001 tweak -- changing the credit to a deduction -- sent all the estate tax money to federal coffers. So states took one of three routes in response: Some repealed their estate taxes; a few decoupled from the federal law and established a standalone tax; and quite a few did nothing, which effectively eliminated their estate taxes but left in place the legislation that set their estate tax equal to the federal credit.

Enter the fiscal cliff. If the 2001 tax cuts -- which were extended in 2010 -- expire as scheduled on Jan. 1, 2013, the federal estate tax will revert to its 2001 status, bringing back the credit, higher tax rates and lower exemption levels. That would be good news for the 30 states that did nothing; they'll see a healthy little revenue bump.

As with almost everything having to do with the fiscal cliff, states are in a watch and wait mode; watch Congress and wait to see what the Obama administration wants. In the past few weeks, at least three organizations that follow state tax issues have posted reports on the estate tax: The Center on Budget and Policy Priorities, the Tax Foundation and the Urban Institute-Brookings Institution Tax Policy Center (TPC). Here's a quick look at how they view some key fiscal cliff issues:

What Congress Could Do

The 2010 legislation that extended the provisions of EGTRRA for two years did not extend the repeal of the estate tax, according to the TPC report. Rather, it modified the estate tax with a lower rate (35 percent) and a higher threshold ($5 million, indexed). The extension did not restore the deal between states and the federal government, also known as the credit for state death taxes (CSDT), but instead retained the deduction for state estate taxes. Congress could extend those provisions either temporarily or permanently. That outcome would not affect states, at least in terms of the CSDT.

Alternatively, the 2010 act could sunset at the end of 2012 as scheduled, restoring 2001 law. That would increase federal revenue significantly because the top rate would go up to 55 percent and the exclusion would drop to $1 million, imposing estate taxes on many more estates. At the same time, restoration of the CSDT in 2013 would reduce federal revenues in 2013 by about $5 billion (assuming no behavioral changes and no additional estate planning) and increase revenue in 30 states that have dormant estate taxes by about $3 billion, half of which would go to California and Florida. The revenue loss is relative to the significantly higher federal revenue that would come from raising the top rate back to 55 percent and slashing the exclusion to $1 million.

A third alternative would extend the law but restore the CSDT in place of the deduction. That policy would affect far fewer estates than the current law because the exclusion would remain high -- an estimated $5.24 million in 2013. The IRS reports fewer than 3,000 estates with a value greater than $5 million in 2011. TPC estimates that this policy would reduce federal estate taxes by about $1 billion (for estates of people dying in 2013) but increase state revenues by about $600 million. Estates would save the $400 million difference because they benefit more from a credit against the federal estate tax than from the current deduction.

The Accounting Effect on Revenue

Several articles, according to the Tax Foundation, have found that repealing the act would be revenue neutral, or even revenue positive over a 10-year period if both the tax changes and economic growth are considered together. This would be largely due to a change in estate evaluations from a "stepped up basis" to a "carryover basis." A stepped up basis asset is one whose value is determined by the fair-market price at the time of death of the decedent, while a carryover asset is one whose value is determined by the adjusted basis (accounting for tax costs) at the time of purchase of the asset, which then carries over to the transferee. The carryover basis encourages the realization of capital gains, unlike the stepped up basis which encourages the owner to hold onto the asset.

Where States Stand

Twenty-five states, according to the TPC, no longer have estate taxes: Alabama, Alaska, Arkansas, California, Colorado, Florida, Georgia, Idaho, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Dakota, South Carolina, South Dakota, Texas, Utah, Virginia, West Virginia, Wisconsin and Wyoming.

Five states collect inheritance taxes but no longer have estate taxes since the federal credit is gone: Indiana, Iowa, Kentucky, Pennsylvania and Tennessee

Fifteen states and the District of Columbia have decoupled from current federal law or established standalone estate taxes independent of federal law: Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Oregon, Rhode Island, Vermont and Washington.

Five states have repealed all references to the estate tax: Arizona, Kansas, Nebraska, Ohio and Oklahoma.

Uncertainty Factors

The uncertainty affects states' ability to administer taxes and to budget responsibly, reports the TPC. Several dormant states may lack the necessary architecture -- that is, the forms, computer programming and customer service personnel -- to resume collecting the estate tax. Yet, the levy may return in 2013, whether or not states act. Uncertainty also imposes a planning burden on states, which often have multiyear budgets that they must balance. The added revenue may surprise some states -- and their residents. Several states where the tax would return say on their websites that they have no estate tax.

Some states, however, would not benefit from the return to pre-2001 federal estate tax law in 2013. The five states that repealed the tax would get no additional revenue and would probably restore the link to the federal credit -- doing that would increase revenue with no additional burden on resident estates.