Inheritance tax rate cuts proposed

The Revenue Committee considered a proposal Feb. 18 that would cut state inheritance tax rates while increasing the amount of property value that is exempt from the tax.

Sen. Robert Clements
Sen. Robert Clements

Sen. Robert Clements of Elmwood, sponsor of LB310, said Nebraska is one of only six states that impose an inheritance tax. He said inheritance tax revenue, which is collected by counties, has increased by approximately 5 percent per year for the past 27 years, much faster than inflation.

Clements said the bill would cut rates in half on each of the three classes of beneficiaries subject to the tax over three years while allowing exemptions to increase at a rate close to inflation.

“Allowing people to keep more of their inheritance will increase capital formation and encourage economic growth,” he said. “Reducing rates and increasing exemptions creates a fairer and more reasonable tax.”

Sarah Curry, policy director at the Platte Institute, testified in support of LB310, saying it would modernize Nebraska’s tax code. She said most states repealed their inheritance and estate taxes after a federal tax change in the early 2000s.

The bill’s effect on counties is difficult to determine because there is no statewide inheritance tax reporting requirement, Curry said, but a Platte Institute analysis shows that inheritance tax revenue made up an average of 3.6 percent of county revenues in 2020.

To help counties offset the loss, the Legislature could authorize them to levy a sales tax, Curry said, which is a more stable source of revenue than the inheritance tax.

Deb Schoor, Lancaster County commissioner, testified in opposition to the bill, saying it would have a disastrous effect on county inheritance tax revenue and result in a greater reliance on property taxes to fund county services.

“Property tax is our primary source of revenue,” she said, “and I don’t need to tell you how sensitive our constituents are about property taxes.”

Dennis Ostgren, Phelps County commissioner, also testified in opposition. He said the county’s inheritance tax fund allows it to cover unexpected expenses — such as road and bridge repairs after the 2019 flooding — and to qualify for lower interest rates on bonds for large projects.

Ostgren said his family recently had to pay inheritance tax.

“I did not feel at all like it was unfair or excessive,” he said. “I felt like it was a tip, if you will, a reward to our county government for its partnership and cooperation in our success.”

Also testifying in opposition was Joe Lorenz, Douglas County finance director. He said the county uses the inheritance tax to fund essential and mandated social services such as a long-term care center, a community mental health center, the county health department and others.

Lorenz said LB310 would reduce Douglas County’s inheritance tax revenue by approximately $9 million per year, forcing it to cut those services or raise its property tax levy.

The committee took no immediate action on the bill.

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