Bill to cut inheritance tax rates, increase exemptions advanced

Lawmakers gave first-round approval Jan. 11 to a bill that would cut Nebraska’s inheritance tax rates while increasing the amount of property value that is exempt from the tax.

Sen. Robert Clements
Sen. Robert Clements

As introduced by Elmwood Sen. Robert Clements last session, LB310 would have cut rates in half over three years while increasing the exempted amounts.

Clements said Nebraska is one of only six states with an inheritance tax, making it a “bad place to die.” LB310 would drive economic growth by keeping more retirees in the state, he said.

Clements said the inheritance tax, which in Nebraska is collected by counties, can seem “arbitrary and excessive” and that heirs sometimes must sell part of their inheritance to pay the taxes owed.

“I think we can do better as a state than to treat families this way,” he said.

A Revenue Committee amendment, adopted 40-4, replaced the bill. Under the amendment, immediate relatives would pay inheritance tax on the clear market value of property over $100,000 received by each person, up from $40,000. The tax rate would remain 1 percent.

The amendment also would decrease the rate from 13 to 11 percent for remote relatives and increase the exemption from amounts more than $15,000 to amounts over $40,000.

A third rate, currently 18 percent of the clear market value of beneficial interests over $10,000, applies in all other cases. The amendment would reduce the rate to 15 percent and increase the exemption to amounts more than $25,000.

Under the amendment, any interest in property passing to beneficiaries younger than 22 would not be subject to inheritance tax.

The changes would apply to estates of individuals who die on or after Jan. 1, 2022.

Clements said the amendment would reduce inheritance tax collections by 15 percent, compared to 50 percent in his original proposal.

Sen. Lou Ann Linehan of Elkhorn supported the amendment, saying it would make reasonable adjustments to a “very unfair and very regressive” tax that, at current exemption amounts, affects Nebraskans who inherit only modest assets.

Thurston Sen. Joni Albrecht also supported the proposal. She said counties could use a portion of the $375 million in federal coronavirus relief funding they are slated to receive this year to offset lost inheritance tax revenue, which totaled approximately $63 million in 2020, according to a Platte Institute study.

Albrecht said Iowa passed a bill last year phasing out its inheritance tax over four years, which will make Nebraska the only state west of the Mississippi River with an inheritance tax. She introduced but later withdrew an amendment that would have eliminated Nebraska’s inheritance tax by 2028.

Sen. Steve Erdman of Bayard supported Albrecht’s amendment, saying county boards would be able to budget for the gradual phasing out of inheritance tax revenue. He said the inheritance tax is a “double” tax because decedents already have paid property taxes on the homes and other real property that they pass to their heirs.

Sen. Matt Williams of Gothenburg opposed Albrecht’s amendment. He said American Rescue Plan Act funds must be spent by 2026, which means they could not offset lost inheritance tax revenue over the long term.

Adams Sen. Myron Dorn opposed the committee amendment and the bill. He said many counties would raise property taxes — their only other major revenue source — to pay for county services if the inheritance tax is reduced or eliminated.

Senators voted 41-4 to advance LB310 to select file.

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