JEFFERSON COUNTY - The inheritance tax is unpopular with Nebraska lawmakers and citizens alike, but the revenue it generates provides critical funding that helps county government function. Now, after failing to pass a bill last year that would have eliminated the tax outright, state lawmakers are trying again – this time, with countermeasures that would help provide consistency in the budget for county governments across the state.  

With Iowa repealing its state inheritance tax at the start of this year, Nebraska is now one of five states in the U.S. that still inflicts a tax on the relatives of the recently deceased. After failing to pass a bill that would have eliminated the tax in Nebraska last year, a reduced version of the tax is on the table to start this legislative session, as Senator Robert Clements works to remove something he feels puts Nebraska at a competitive disadvantage.  

“Our overall goal is to eliminate a tax that is not fair and not competitive with other states, but then to do it in a way that doesn’t raise property tax and we get broad support statewide,” Clements said in a one-on-one interview with News Channel Nebraska this week. “No neighboring states have this tax, and we’re seeing people leaving Nebraska to avoid this tax, especially if they have no children.” 

Instead of eliminating the tax outright, this year’s version of the bill, LB 468, would set one flat standard all relatives of a decedent would have to pay: one percent on the market value of the inherited property, instead of the current model which charges higher rates for people more distantly related to the deceased. 

But while the tax itself is unpopular with both lawmakers at every level and the taxpayers they represent, it provides revenue directly to Nebraska’s county governments, helping them provide services at the local level without raising taxes elsewhere.  

“We all want to reduce or eliminate the inheritance tax – nobody likes it. But the fact of the matter is Nebraska counties depend on this to a pretty substantial degree,” said Mark Schoenrock, chair of the Jefferson County Board of Commissioners. “[Without it] we’d need to either raise property taxes by three points on the levee, or reduce services by that same amount. We’d either have to raise taxes or cut services, and we don’t want that.” 

Jefferson County is far from the only one of Nebraska’s 93 counties that would stand to lose a lot of income if this specific revenue source is removed. So Schoenrock and the other members of the board of Nebraska’s National Association of County Officials (NACO) have worked with Senator Clements and Governor Jim Pillen to establish what they call replacement revenue sources, which would help offset the losses incurred by an inheritance tax reduction – a total NACO concludes would amount to a loss of $33 million. 

“My bill last year did not give any replacement revenue to the counties so they opposed it, and the senators here couldn’t get the votes to pass that bill,” Clements said. “So when we adjourned last spring, starting in May I started meeting with NACO and county officials as to what they would like to see as a compromise, and how they would support a new bill. They gave me a lot of different areas of revenue that the counties receive, and I’ve been working on enhancing those revenues, and making an increase that would make up for the decrease that comes with the inheritance tax bill I proposed.” 

Schoenrock shared a list of the proposed “pay fors” from a reworked version of LB 468, which includes: increasing counties’ share of documentary stamp taxes by 50 cents; increasing marriage license fees from $25 to $40; increasing motor vehicle out of state inspection fees from $10 to $20; increasing taxes on nameplate capacity, carline, and insurance premiums; and providing $5 million from the Securities Act Cash Fund. 

“As a group, we are putting ourselves out there,” Schoenrock said. “The alternative is also out there where, if we don’t do anything, there would be a pretty fair likelihood that the inheritance tax would just be taken away, period, and there wouldn’t be any replacement revenue – and then where are we as counties, because of that loss of revenue?” 

With these “pay fors” in place, NACO conditionally supported Clements’ bill at a public hearing in the revenue committee on February 5. Schoenrock testified in conditional support on behalf of the board.  

On top of Nebraska being now one of only five states that still collects an inheritance tax, it’s the only one of the five where that surplus goes directly to the county in which the deceased person lived – in the other four [Kentucky, Pennsylvania, Maryland and New Jersey], the money goes to the state treasury, which then metes it back out to all the counties.  

From NACO’s perspective, every cent counties can acquire from any source – not just via the inheritance tax – helps them provide the services local citizens expect and need. There’s even a completely separate proposal on the table in this legislative session: a constitutional amendment introduced on January 14 by Senator Bob Hallstrom – and cosponsored by Clements and others – that would outright prohibit “the state and any political subdivision thereof...from levying an inheritance tax.” This, like Clements’ bill in 2024, would completely remove the inheritance tax as a burden on Nebraska citizens but also eliminate it as a potential source of revenue for any and all of Nebraska’s 93 counties. 

“Our cumulative costs the last four years went up 20 percent; our tax asking went up 12 percent. Where did we make up the difference? In inheritance tax and some of the other grants and things we’ve been successful in doing,” Schoenrock said at a Jefferson County board meeting ahead of the hearing. “If we didn’t have that, we either cut the services or we increase the taxes that people pay on their property. So that’s what we’re up against.” 

Clements, meanwhile, positions the inheritance tax as an inherently unstable source of revenue. The money raised varies wildly from county to county, and it’s entirely dependent on how many people die in a given budget year and, more importantly, how much wealth they have accumulated at that point. In other words, if no one in a county dies in a given budget year, there’s no revenue to be gained on an inheritance tax anyway. In one word, Clements says the replacement sources of revenue would provide the counties with more consistency. 

“I know of a county that usually gets a million dollars a year from inheritance tax, and then one year they’ll get five million. And then it might go down to a million or less,” Clements said. “It’s hard for them [the counties] to budget it all on that kind of an inconsistent revenue. I think if they had a more consistent revenue they could rely on, they could budget more accurately.” 

With those adjustments to the original bill now in place, many smaller counties across the state joined in support of LB 468 this month. But representatives of other, larger counties, as well as many outside organizations and individuals, testified against the bill, saying not enough had been done to offset the losses they would face. 

“Reducing the inheritance tax without thoughtful and forward-looking provisions to reliably replace revenue would have a disastrous effect on our county’s finances, and would undermine the successful work brought by the legislature to reduce property taxes,” said Christa Yoakum of the Lancaster County Board of Commissioners, who testified in conditional opposition to the bill this month. “Not only would shortfalls in LB468’s proposed funding immediately impact our budget, our future property taxpayers would also be put at risk because several of the replacement funding streams are explicitly subject to future reexamination by the legislature.” 

Meanwhile, other organizations outside the government feel the proposals in LB 468 don’t go far enough. The Platte Institute in Omaha has been staunchly opposed to any level of an inheritance tax, calling it “an outdated and burdensome part of Nebraska's tax code” in a press release on February 5, the day of the hearing.  

“This tax is a relic of the past that must be fully eliminated,” Jim Vokal, CEO of the Platte Institute, said in the release. “It punishes families for building generational wealth and makes Nebraska less competitive. It's time to follow our neighbor states and end this tax once and for all.” 

The institute said it was standing neutral on LB 468, and instead indicated support for the constitutional amendment to eliminate the tax entirely, saying in the release its polling has shown nearly 80% of Nebraskans favor abolishing the tax outright.  

That might be in the cards for Clements and company in the future, but as it stands now the senator says new data made available to the counties currently in opposition to LB 468 might well be enough to convince them that the revenue they stand to lose with an inheritance tax reduction will be substantially balanced out.  

“There was some confusion as to how much revenue they would receive. I think some had inaccurate calculations,” he said. “We’ve been working with total figures, statewide, and there are some counties that may have not considered all the revenue that we’re giving them back. I know that we are working to resolve any of those opponents, and show them that they really are going to come out better.” 

In the wake of last week’s hearing, Senator Clements says this week he’s been meeting with county officials and senators and working to draft an amendment to the bill that would address concerns posed by the various non-governmental entities that have opposed the bill. If that amendment gets enough endorsement from the revenue committee, then it can be reviewed on the Senate floor.  

Eventually there may come a time when a proposal to eliminate the inheritance tax is reintroduced, whether in the form of a constitutional amendment like Hallstrom’s or in a bill like Clements’. But for now, Clements’ goal is to move forward on this bill, which he believes would help Nebraska keep pace with other states without hurting the counties or the citizens that actually live – or in this case, die, here. 

“We are wanting Nebraska to be competitive with other states so that we’re not losing retirees who want to get out of here before they die,” he said. “Some person said to me, regarding the inheritance tax, ‘Don’t be caught dead in Nebraska,’ and I really think that’s a bad slogan for us to have, so overall I’m really looking for the time when we can eliminate this, but still preserve the revenues and not raise property taxes.”