Inheritance tax cut clears first round

A proposal to cut county inheritance tax rates while also distributing replacement revenue to counties advanced from general file April 29.

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

Clements said the measure also would direct approximately $34 million in new revenue to counties, which otherwise likely would increase property taxes to offset the lost inheritance tax revenue.

“LB468 doesn’t repeal the inheritance tax but does cut it by approximately 36% and makes it much more fair,” he said. “If the budget was not short, more could be done this year.”

A Revenue Committee amendment, adopted 27-3, replaced the bill with a modified version of the original proposal.

Under the amendment, the rates that apply to remote relatives and all other beneficiaries would decrease to 3% on inheritances of more than $50,000. The 1% rate for immediate relatives would be unchanged, but the exemption threshold would increase from $100,000 to $150,000.

The new rates and exemption thresholds would apply to decedents dying on or after July 1, 2025.

To replace the lost revenue, the amendment would:
• allow counties to retain a higher percentage of motor vehicle taxes they collect on behalf of the state;
• eliminate a current distribution of documentary stamp tax proceeds to the Site and Building Development Fund and instead direct those proceeds to counties;
• increase the nameplate capacity tax paid by owners of renewable energy generation facilities from $3,518 to $6,560 per megawatt; and
• reallocate 100% of property taxes paid by railroads to counties.

The measure also would decrease the state’s share of taxes paid by insurance companies and increase counties’ share by the same amount. Additionally, it would require an annual $5 million transfer to counties from the Securities Act Cash Fund. The money currently is directed to the state General Fund.

Clements said the amendment partially would offset those state revenue losses by repealing a sales tax exemption for data center equipment as well as certain tax incentives under the ImagiNE Nebraska Act.

Even with those changes, he said, the measure would reduce state revenue by approximately $3 million per year. Clements said he would seek to amend the bill on select file to reduce or eliminate that loss.

Finally, the amendment would increase fees to cover more of what it costs counties to issue marriage licenses, inspect vehicles and provide other services, easing the pressure on property taxes, Clements said.

Sen. Glen Meyer of Pender supported the measure. He said inheritance tax proceeds are approximately 10% of county revenue, making the tax “instrumental” in funding county operations, particularly infrastructure projects.

Meyer said Clements worked in good faith with the Nebraska Association of County Officials to find acceptable sources of replacement revenue.

“I think there’s been a consensus that — if we could find an alternative source of revenue — in general, the counties are OK with getting rid of the inheritance tax,” he said.

North Platte Sen. Mike Jacobson also supported LB468, saying it would reduce the disparity in rates among the different classes of beneficiaries and replace a portion of counties’ inheritance tax revenue with more stable funding sources.

Sen. Robert Dover of Norfolk said he was concerned about cutting the annual $4.2 million documentary stamp tax allocation to the Site and Building Development Fund. He said the fund, which helps Nebraska communities prepare sites and construct buildings for new and expanding businesses, is one of the state’s most effective economic development tools.

Omaha Sen. Bob Andersen opposed LB468. Although the inheritance tax is a form of double taxation that should be eliminated, he said, the committee amendment would worsen the state’s current revenue shortfall and shift taxes currently paid by beneficiaries to all taxpayers.

Also opposed was Sen. Jane Raybould of Lincoln, who said the proposed rate cuts could make it more difficult for counties to raise sufficient revenue in future years, even with the proposed replacements.

She offered an amendment that would have reduced county revenue losses by making smaller cuts to the rates that apply to beneficiaries other than immediate relatives. It failed on a vote of 2-30.

Lawmakers also rejected two amendments introduced by Lincoln Sen. Eliot Bostar. The first would have phased out the inheritance tax over the next decade without providing replacement revenue to counties.

The second Bostar amendment would have eliminated the inheritance tax in 2027. He said the proposal would have allowed county boards to replace the lost revenue by imposing a 0.25% sales and use tax on transactions within the county.

After adoption of the committee amendment, LB468 advanced to select file on a vote of 27-10.