Revenue Committee Hears Testimony on Two Inheritance Tax Studies

By Gordon Hopkins The Nebraska Legislature's Revenue Committee heard testimony on Friday, November 22, 2024, about two interim studies that deal with the possible elimination of inheritance tax and the impact that would have on counties. Eliminating inheritance tax has been a priority of Governor Jim Pillen since he took office and for a number of Nebraska senators for far longer than that. The difficulty for many rural counties is that they depend on that money to operate. Many local officials have expressed concerned that, by reducing or eliminating this source of revenue, they would then be forced to raise tax levies. That could then negatively impact the governor's number one priority, lowering property taxes.The committee heard testimony from invited speakers only. The first of the studies discussed was LR (Legislative Resolution) 314, an interim study to examine adjustments to county revenue sources to fund a phase out of Nebraska's inheritance tax. The second was LR 435, an interim study to assess the loss of funding to Nebraska counties as a result of an elimination of the Nebraska inheritance tax and to identify potential state funding sources to replace that lost revenue.Currently, Nebraska is one of only six states that collects inheritance tax. The others are Kentucky, Maryland, New Jersey, Pennsylvania and Iowa, which is in the process of phasing out the tax.Senator Rob Clements, (District 2) was the first to testify. He pointed out, “Inheritance taxes have been repealed by 45 states since 1925, with 14 of those states dropping the tax since the loss of the state tax credit against federal estate tax in 2001. Nebraska kept its inheritance tax and remains the only state where it is paid to counties.” Testifying in favor of eliminating the inheritance tax was Brandy Burkett from Legislative District 4, “I am a fifth generation Nebraskan who will inherit farmland from my mom. The cost of the inheritance tax will be unaffordable to me. The future of farming is unknown, just like the weather. While we can't control the weather, we can control and help to make sure the next generation to take over family farms can continue farming and keep their land in the family. Please keep in mind that there are approximately 40,000 family farms in Nebraska. When faced with an expensive price tag, we can just say no to buying a product. However, when faced with having to pay a tax, we can't say no because people are forced to pay it.”Burkitt talked about the impact for those who cannot afford the tax, “Individuals that inherit land could be faced with a difficult decision of not being able to afford the inheritance tax, and instead of going into debt, they will sell the land quickly. You may think, no big deal if they sell. However, to me, I think about who are they selling the land to. A corporate or individual that has foreign ties? Someone that will turn the land into a parking lot and not even use for growing more corn for ethanol? I will be blunt. I don't really care if the individual that inherits a house on Third Street in a small town sells the house, but I do care if farms start to die and the future of our food goes extinct.”Also testifying was John Cannon, the executive director of NACO (Nebraska Association of County Officials). It is the position of NACO is that, while the organization does not oppose eliminating inheritance tax, it must be replaced with an alternative source of funding or counties risk being unable to provide necessary services for their citizens. Cannons said, “You've heard this refrain before. For counties, we pay for roads, bridges, law enforcement, jails, courts, elections, and also the infrastructure, the fair and equitable administration of all these, these things that come together to form county government.”Cannon pointed out that, unlike the state, counties are limited to just two forms of taxes, “We have a tax on property that comes from the annual assessment of fair market value of property. And then we have when wealth transfers to an heir. Counties do not collect sales or income taxes.”“Any other revenues that we may have are limited to transfers from the state or federal governments or the collection of fees that are specific to a service provided, and those fees are determined. They're set by the state,” added Cannon. “I will point out that. In 2023, counties collected $865 million in property taxes for the county, and we collected just under $100 million in receipts for the inheritance tax. And so, the spend from county government was $965 million and removing $100 million bucks,” said Cannon. “It's either an 11 percent increase in property taxes to make it up, or it's 11 percent decrease in services.”Cannon added, “Eleven percent is a big deal. That would be hard for our citizens to absorb.”That position was echoed by a Douglas County Commissioner “So, the majority of Douglas County's inheritance tax revenue is used to fund county's community mental health center, general assistance, health department, veteran services, etc. These are very important health and human service functions that primarily serve those in our counties that are in most of need. Without an equal permanent replacement revenue source, the elimination of the inheritance tax could result in revenue loss and service reduction. The county board would have to either significantly cut certain services or increase our property tax levy.” A number of different alternative taxes and revenue streams have been examined and are still being considered. In his closing remarks, Senator Clemens noted, “One thing we found is that the schools get $200 million a year of motor vehicle taxes, revenues from vehicle licenses, which, they're not having to build roads, but the counties are. It might make some sense to give the county some more of the vehicle fees. But the everybody knows, the motor vehicle licensing is already very high, and so we didn't consider increasing anything with motor vehicle licensing. But we're continuing to research that.”Cannon brought up another possible revenue stream which has been suggested in the past: an Interstate 80 surcharge. “I'm not going to say it's anything but a crazy idea. But, you know, we've talked in various circles about an I-80 surcharge, essentially a two percent additional sales tax on all retail sales made within a quarter mile of I-80. I-80 has, is the last five years, has had at least four billion travel miles on it every year. And a lot of those travel miles are by people that don't live here,” said Cannon. “And so, to the extent that people that are using our roads that don't live here and don't vote here, to the extent that we can make them defray some of the costs that we bear.” Jefferson County Commissioner Mark Schoenrock, who also serves on the NACO Board, observed the hearing and gave a report to his fellow commissioners on Tuesday, November 27, “ A number of issues were discussed. A lot of good input, I think, into the equation. Of course, that will result in some efforts when the new (legislative) session starts in January.”

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