29-04-2025
Nebraska advances proposal to reduce inheritance tax as budget gap grows
State Sen. Robert Clements of Elmwood asks a question during a hearing on Oct. 27, 2023, in Lincoln. (Zach Wendling/Nebraska Examiner)
LINCOLN — A proposal to decrease Nebraska's inheritance tax advanced Tuesday with a 27-10 vote.
Nebraska is just one of six states that still has an inheritance tax. The Cornhusker State is the only one that sends inheritance tax revenue exclusively to counties, with much of it used to fund bridges and roads.
Elmwood State Sen. Robert Clements' proposal would lower the inheritance tax rate to 1% for children and 3% for distant relatives and non-relatives, but would not eliminate the tax. It would replace lost county revenue by increasing county fees, adding to the costs of motor vehicle inspections and marriage licenses.
The proposal also would cost the state $3 million a year in projected revenue over the next two fiscal years, as it would increase the county's share of the state's insurance premium tax, at a time when the state budget shortfall continues to grow.
It would increase fees on property and asset seizures to cover personal debts, advertising for delinquent properties, a higher tax on renewable energy generation, and it would eliminate some business tax breaks.
Clements said his proposal, Legislative Bill 468, would help attract people to move to Nebraska and make the inheritance tax rate fairer. The Nebraska Association of County Officials, which backs the Clements bill, estimates the proposal could increase county revenues by roughly $8.9 million.
Currently, Nebraska imposes a 1% tax on inheritances exceeding $100,000 for children, parents, and siblings. Higher tax rates are charged to more distant relatives — 11% for aunts and uncles and nieces and nephews after a $40,000 exemption. Non-relatives would have to pay 15% after a $25,000 exemption.
Nebraska Taxpayers for Freedom and the Nebraska Republican Party testified in support of the bill during its hearing in February, saying it would end the state's 'outlier' status in imposing an inheritance tax and stop wealthy residents from moving away to avoid the tax.
'Nebraska is losing retirees faster than we are gaining population from other states,' Clements said. 'Our inheritance tax contributes to this migration. I believe we can do better as a state in this area and give people more reasons to stay in our state.'
State Sen. George Dungan of Lincoln said the debate on the inheritance tax continued the theme of the state 'balancing budgets on the backs of everyday hard-working Nebraskans.'
Lincoln State Sen. Eliot Bostar filed two failed amendments: One would have eliminated the inheritance tax without replacing the revenue, and another would have let counties increase local sales taxes to make up the lost revenue. Bostar said that when he started in the Legislature, he had a misunderstanding about who paid the tax.
'There are a lot of fairly trivial things that if you have enough resources, you can do in order to avoid paying this tax,' Bostar said. 'So that leaves everyone in the middle.'
Lincoln State Sen. Jane Raybould also had a failed amendment that would have tweaked the tax rates of the new proposal. She emphasized the 'unintended consequences.' Lawmakers have expressed concerns in the past that eliminating the inheritance tax could lead to higher property taxes but said Clements' proposal strikes a 'nice balance' of helping replace the lost revenue.
'I don't think there's any perfect way to reimburse, dollar for dollar, the counties for any lost revenues resulting from the changes proposed in the inheritance tax,' Syracuse's Sen. Bob Hallstrom said.
But Hallstrom praised the Clements proposal's balance. Lawmakers on both sides of the aisle raised issues about the increase in other fees and taxes to make up for lost county revenue. A few Democratic-aligned lawmakers expressed concerns about the measure's proposed increase in the nameplate capacity tax on renewable energy sources and its impact on school revenue.
LB 468 would nearly double the nameplate capacity tax from $3,518 per megawatt of electricity generated to $6,560 per megawatt.
'I think that I would say it's pretty hard to be doubling this [Nameplate Capacity] tax to me,' Omaha Sen. Margo Juarez said.
Some Republican-aligned lawmakers expressed worries over the elimination of some business incentives and the tax exemption for data center equipment. The bill also would do away with tax breaks in the ImagiNE Act for data centers and modernizing large businesses.
Clements said school revenue wouldn't be negatively affected because of the increase in fees.
Nebraska's budget shortfall, at least in part, is due to tax cuts that lawmakers passed in recent years. Throughout the session, lawmakers have proposed scaling back various tax incentive programs, reducing the state's school retirement contributions by $80 million, and increasing taxes on nicotine pouches.
Clements said he would propose amendments to address lawmakers' concerns about where the inheritance tax replacement revenue comes from. He said he wants to eliminate the tax next year.
'Just because he's been committed to the issue for many years,' said Sen. Danielle Conrad of Lincoln said of Clements' proposal, 'it doesn't mean that this proposal results in good policy.'
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