Inheritance tax measure would replace lost county revenue

The Revenue Committee heard testimony Feb. 5 on a proposal to cut certain county inheritance tax rates while also distributing replacement revenue to counties.

Currently, immediate relatives pay a 1% tax on the clear market value of property over $100,000 received by each person.

LB468, introduced by Elmwood Sen. Robert Clements, would decrease the rate paid by remote relatives — including uncles, aunts, nieces and nephews — from 11% to 1% on inheritances of more than $100,000, up from the current $40,000.

A third rate that applies to all other beneficiaries would decrease from 15% to 1% on inheritances of more than $100,000, up from $25,000.

The new rates and exemption amounts would take effect July 1.

Clements said Nebraska’s disparate inheritance tax rates are unfair to beneficiaries who are not children of a decedent. Although LB468 would not eliminate the tax entirely, he said, the proposal would make it fairer by treating all beneficiaries the same.

Clements said he is committed to replacing the approximately $34 million per year counties would lose in inheritance tax revenue under his measure. The numerous revenue replacements proposed in LB468 would more than cover that amount, he added.

To cover the lost revenue, the measure would increase the nameplate capacity tax paid by owners of renewable energy generation facilities, increase the documentary stamp tax collected by counties on the transfer of real estate and repeal tax incentives for certain data center projects under the ImagiNE Nebraska Act, among several other changes.

The state Department of Revenue estimates that LB468 would increase total state revenue by $13.6 million in fiscal year 2025-26 and $13.8 million in FY2026-27.

Jon Cannon testified in favor of the bill on behalf of the Nebraska Association of County Officials, saying its support is “conditioned on counties being made whole.” He said county officials have “incredible angst” about eliminating the inheritance tax, which comprised about 10% of total county revenue last year, without a promise of adequate and sustainable replacement revenue.

“From our perspective,” Cannon said, “it’s either 10% more of a spend on the property tax side or it’s 10% less services, which we hear from our constituents they don’t want less of.”

Also in support was Ryan McIntosh of the Nebraska Federation of Independent Business. He said the inheritance tax is outdated, unfair and results in lost economic activity and investment by incentivizing wealthier Nebraskans to leave the state to avoid taxation of their heirs.

Testifying in opposition to LB468 was Lori Pirsch on behalf of Douglas County. The proposed offsets would not fully replace the county’s lost inheritance tax revenue, she said, and the new revenue would have to be reallocated from specific departments to the various health and social services currently funded with inheritance tax proceeds.

Carol Bodeen of the Nebraska Housing Developers Association also testified in opposition. She said LB468 would reduce the allocation of documentary stamp tax proceeds to the Affordable Housing Trust Fund at a time when the shortage of affordable and available housing units in Nebraska is greater than ever.

“Housing developed using this fund is essential in meeting the needs of working families, attracting new families and increasing investment in our communities,” Bodeen said.

Also in opposition was Hunter Traynor, who spoke on behalf of the Nebraska Chamber of Commerce and Industry and four other organizations representing Nebraska businesses and economic developers.

He said the Trump administration and private industry are preparing to make large investments in data processing facilities needed for artificial intelligence over the next several years. By increasing the cost of renewable energy and eliminating incentives for data centers, Traynor said, LB468 would make it less likely that those projects are located in Nebraska.

The committee took no immediate action on the bill.