Scaled-back inheritance tax cut stalls on second round

A proposal to cut county inheritance taxes while also distributing replacement revenue to counties stalled on select file May 13 after a failed cloture motion.

LB468, introduced by Elmwood Sen. Robert Clements, would cut the rates paid by remote relatives — including uncles, aunts, nieces and nephews — and non-related beneficiaries while also increasing the applicable exemption amounts.

As amended on general file, the bill also would increase the exemption amount for immediate relatives, who pay a 1% rate.

To replace the lost revenue, the measure would increase the nameplate capacity tax paid by owners of renewable energy generation facilities and allow counties to retain a higher percentage of state motor vehicle taxes, among several other changes.

LB468 also would increase fees to cover more of what it costs counties to issue marriage licenses, inspect vehicles and provide other services.

On select file, Clements offered an amendment he said would address concerns raised by lawmakers during first-round debate.

As amended on general file, the measure would repeal certain tax incentives under the ImagiNE Nebraska Act and increase counties’ share of taxes paid by insurance companies. It also would end the distribution of documentary stamp tax proceeds to the Site and Building Development Fund and instead direct those proceeds to counties.

Clements said the select file amendment, adopted 27-1, would omit those changes and scale back the proposed tax cuts accordingly. Under the amendment, the rates that apply to remote relatives and non-related beneficiaries would decrease to 7% rather than 3% on inheritances of more than $40,000 rather than $50,000.

He said the updated proposal would decrease county inheritance tax collections by $22 million, or approximately 24%, and provide counties with slightly more than that amount in replacement revenue.

Cutting the rates would make Nebraska more competitive with other states, most of which have eliminated the inheritance tax, Clements said.

“We’ll have something that is less than what I wanted to do,” he said, “but it at least will be a step in the right direction.”

Sen. Bob Hallstrom of Syracuse supported the amendment, saying the changes would eliminate the measure’s estimated $3 million annual cost to the state. He said the proposed fee increases would help cover the cost of providing the related county services, which otherwise are supported by property taxes.

Lincoln Sen. Danielle Conrad opposed LB468 and filed a series of motions to delay a vote on it. She said the measure would cut a progressive tax while making regressive fee increases and raising taxes on the renewable energy industry.

By not eliminating the inheritance tax altogether, Conrad added, the measure would not affect Nebraska’s competitiveness with other states.

To help offset lost county revenue, the amendment also would require an annual $5.6 million transfer to counties from the Securities Act Cash Fund. Clements said the proposal would offset this loss to the state by eliminating a sales tax exemption for certain data center equipment.

Sen. George Dungan of Lincoln, who also opposed LB468, expressed concern that repealing the exemption would not generate enough revenue to offset the annual transfer, eventually resulting in state General Fund losses.

After four hours of second-round debate, Clements filed a motion to invoke cloture, which ends debate and forces a vote on the bill and any pending amendments.

The motion failed on a vote of 31-11. Thirty-three votes were needed.

LB468 is unlikely to be scheduled for further debate this session.