Inheritance Tax Bill Passes

By Gordon HopkinsThe Nebraska Legislature passed a bill into law intended to cut inheritance tax rates and increase exemptions on Friday, February 11, 2022.Legislative Bill (LB) 310 was introduced by Senator Robert Clements (District 2) of Elmwood during the previous session. According to Clements, Nebraska is one of only six states with an inheritance tax, making it, in his words, a “bad place to die.”Clements said the bill would drive economic growth by keeping more retirees in the state.Attempts to decrease or eliminate the inheritance tax have been ongoing for many years.Under a Revenue Committee amendment, immediate relatives would pay inheritance tax on the clear market value of property over $100,000 received by each person, up from $40,000. The tax rate would remain at one percent. That amendment also decreases the rate from 13 to 11 percent for remote relatives and increase the exemption from amounts more than $15,000 to amounts over $40,000.Under the new law, property passing to beneficiaries younger than 22 years of age is not subject to inheritance tax. The proposal also expands the definition of relatives for purposes of the inheritance tax to include certain step relatives.The bill passed with a 37 to one vote. Among those voting for the bill was Senator Tom Brandt (District 32).Last year the Platte Institute for Economic Research, a free market think tank headquartered in Omaha, testified in front of the legislature in support of LB 310. According to the Institute’s website, “Iowa is currently in the process of phasing out its inheritance tax by 2025. Because Nebraska’s tax was created in 1901, many of its provisions are in need of modernization.”2021 HearingNebraska Governor Pete Ricketts has made reducing property taxes a hallmark of his administration. Some fear an inheritance tax cut passes could have the opposite effect.Both supporters and opponents of the bill spoke to the Legislature last year at a hearing on February 18, 2021.“Allowing people to keep more of their inheritance will increase capital formation and encourage economic growth,” Senator Clements said at the hearing. “Reducing rates and increasing exemptions creates a fairer and more reasonable tax.”However, some county commissioners and representatives of NACO (Nebraska Association of County Officials) testified regarding the effect of reducing inheritance tax revenues on county budgets.Lancaster County Commissioner Deb Schoor testified in opposition to the bill, “Property tax is our primary source of revenue.”The loss of inheritance tax revenue could possibly mean counties would be forced to raise property taxes to make up the difference. Schoor added, “I don’t need to tell you how sensitive our constituents are about property taxes.”Local ReactionJefferson County Commissioners have previously spoken to Senator Brandt about their concerns if the bill became law.Earlier this year, county commissioner Mark Schoenrock told FJN, “Most people are going to say, ‘Oh, you know, that’s a good thing to cut taxes,’ and they probably don’t understand how most counties utilize inheritance tax revenue. I mean, the only alternative that we have as a county board is what? Property taxes. That’s our only other alternative. We don’t have any other revenue streams that come to us.”FJN reached out to Jefferson County Commissioners for their reaction. Schoenrock said, “Most all counties in Nebraska, including Jefferson County, use inheritance tax revenue to lessen the amount of property tax asking that is needed to fund essential county government services and to maintain a county reserve for emergency contingencies.”Schoenrock also provided some numbers, “For comparison sake, the 2021-2022 budget Jefferson County tax request is $6,310, 270 on a levy of .342767 from the 2021 county valuation of $1,840,979,565. Budgeted inheritance tax transfer into the general fund: $385,000. If the county government did not have that inheritance tax revenue, that amount would have to come from property tax, which would equal a levy increase of approximately .0209 to make up for that revenue.”According to Schoenrock, Jefferson County Inheritance tax revenue the past three years is as follows:• 2018-2019: 668,239.05• 2019-2020: 384,862.78• 2020-2021: 901,265.42“Jefferson County tries to maintain our reserve at approximately $2,000,000. The balance as of 12/31/2021 is $2,151,762.70,” said Schoenrock. “It is estimated by NACO that LB 310 will cut inheritance tax revenue to the counties by approximately 15 percent, so it will potentially lead to either considering reducing reserve balances needed for contingencies and emergencies, cutting services or increasing levy, or a combination of the three options. We must balance our budget every year, unlike the federal government which continues deficit spending at an unprecedented rate.”Schoenrock also pointed out, “The board of commissioners was able to keep the levy rate unchanged from the 2020-2021 to the 2021-2022 budget, although the county valuation increased only 1.46% and we experienced significantly increasing costs for virtually all inputs into the county budget. The costs of personnel, machinery, equipment, supplies, etc. have significantly increased for all of us, and county government has to pay those increased costs, just like everyone else. Through prudent budget management and utilization of inheritance tax revenue, the board was able to not increase the levy rate and ensure the coordination and delivery of essential quality governmental services to the citizens of Jefferson County in a fiscally responsible manner. With every decision our board makes, we recognize and appreciate the hard work and dedication that it takes to provide the taxpayer provided tax revenue for our county, for we are also taxpayers. We work hard to ensure those resources are utilized in a prudent and responsible manner to provide the products and services required to make Jefferson County an attractive and satisfying place to live and work.”Commissioner Gale Pohlmann also provided FJN with some figures as they relate to estate size given to each person. There are three categories of inheritance groups:Immediate relatives. Estate size at $500,000/person county would lose 13%.Remote relatives. Estate size at $500,000/person county would lose 15.4%.Other beneficiaries. Estate size at $500,000/person county would lose 19%.Immediate relatives. Estate size at $1,000,000/person county would lose 9.4%.Remote relatives. Estate size at $1,000,000/person county would lose 17.5%.Other beneficiaries. Estate size at $1,000,000/person county would lose 17.9%.“As noted you can see that smaller estates going to immediate relatives will not have as much affect on the county as larger estates to remote relatives and other beneficiaries. The rate for estates to immediate relatives stayed at 1% while the exemption jumped $60,000. The rates for remote relatives dropped from 13 to 11% and the exemption jumped $25,000. The rates for other beneficiaries dropped from 18 to 15% and the exemption jumped $15,000. You will have to research there definition of immediate, remote, and other beneficiaries as it sounds as if they changed also,” said Pohlmann. “My thoughts are that most of our estates will be for immediate family which will have some affect on county income, but not at a drastic level as that rate did not change. Basically only a loss of $600/person due to the $60,000 jump in the exemption at the 1%. The main thing is they don’t come back next year and try to take another bite!”

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