JEFFERSON COUNTY – For the second time this year, the Nebraska legislature was presented with a proposal to alter the state's unpopular inheritance tax – and this bill would give voters the option to eliminate the tax outright in next year's general election. 

Nebraska remains one of just five states in the U.S. that still inflicts a tax on the relatives of the recently deceased. Earlier this legislative session, Senator Robert Clements presented the Nebraska Senate with a bill that would reduce the inheritance tax burden of Nebraska citizens, but this month, a rival proposal has appeared: a proposed constitutional amendment that would eliminate the inheritance tax altogether.  

First introduced to the legislature in January but presented to Nebraska’s revenue committee earlier this month by Senator Bob Hallstrom, LR13CA has a simple provision: “The state and any political subdivision thereof shall be prohibited from levying an inheritance tax.” The senator from District 1 cited figures showing that from June 30, 2023 to July 1, 2024, over 9,700 beneficiaries paid just over $84 million in inheritance taxes to Nebraska’s 93 counties, which provides variable, unstable – but not negligible – amounts of revenue.  

Hallstrom noted that of the five states that still impose what many have dubbed a “death tax,” Nebraska is the only one that collects that tax at the county level – in the other four states [Kentucky, Pennsylvania, Maryland and New Jersey], the money goes to the state treasury, which then metes it back out to the counties.  

“The inheritance tax affects people across all income levels, socioeconomic classes. I believe it is wrong for the government to levy this additional tax on property, where annual property taxes have already been levied, and annual property taxes will continue to be levied,” Hallstrom said in his introduction to the proposal at a revenue committee hearing this month. “We are trying to grow Nebraska and keep citizens here, but because of this tax they may choose to move to another state to avoid placing a tax burden on their loved ones after passing.” 

Supporters of Hallstrom’s proposal argued that fewer taxes would make Nebraska more attractive to people considering moving to – or away from – the state, and that the elimination of this particular tax would force county governments to be more judicious with their spending. 

“Repealing the inheritance tax should not be about raising property taxes or cuts in services to replace the lost revenue. Raising taxes is not the answer to government overspending,” said Susan Gumm of Omaha, who has testified for or against multiple bills so far this month. “Eliminating the inheritance tax is an opportunity for counties to promote fiscal responsibility by reassessing their budgets, trimming excesses and nonessentials, and eliminating or privatizing inefficient, unaffordable programs. Government must stop spending more than what taxpayers can afford.” 

Perhaps unsurprisingly given that perspective, a group that stood staunchly opposed to Hallstrom’s plan to remove the tax were representatives from Nebraska’s many county governments, which have argued that revenue from inheritance tax is essential to helping local governments not only survive but also provide services to their constituents. Most – but not all – counties initially announced conditional support for Clements’ February bill that provides pathways – dubbed “pay fors” - to help make up for the revenue that would be lost if the inheritance tax is reduced.  

But Hallstrom’s proposed amendment provides no such safety nets, so board members from counties of all sizes – from large counties like Douglas and Lancaster, to medium counties like Holt and York, to small counties like Jefferson and Fillmore – testified in opposition. And they all stated that while it’s not easy to predict exactly how much income a county might receive from inheritance tax in a given year, all counties account for at least some level of surplus stemming from that tax in their annual budgets, and they use that revenue to fund services like roads, emergency personnel, and broadband, which their citizens consider essential aspects of their daily lives. 

“After speaking to some of my constituents about the ramifications of this bill, the overwhelming agreement is to leave inheritance tax alone, because it would just end up raising our property tax,” said Wade Sluka of the Fillmore County board of supervisors. “The simple truth to this bill is, it may be an unintended consequence, but it is still a consequence: without this revenue source, property taxes go up, or services will be cut. And this is not just a random threat by a county board member threatening to raise property tax, that’s not what I’m doing – it's just simply the truth.” 

“Nobody likes inheritance tax, but the facts are that Nebraska counties depend on it as a significant source of our revenue to provide essential services to our fellow citizens. If it is eliminated, we have two choices: cut critical services or raise property taxes,” Mark Schoenrock of the Jefferson County commissioners said in a written testimony. “Our citizens do not want less law enforcement, less road and infrastructure maintenance, less ambulance service especially in our rural areas, less courthouse services, and all of the other critical services provided by county government. These services ensure the safety, health and well being of our fellow citizens and directly support our economy. LR 13 CA significantly puts all of that in jeopardy.” 

“Repealing the inheritance tax through a constitutional amendment that does not also thoughtfully enshrine a reliable replacement revenue stream would have a disastrous effect on our county’s property taxpayers,” said Christa Yoakum of the Lancaster County board. “We urge this committee to advance LR13CA only with an amendment setting forth a reliable replacement revenue stream that ensures Lancaster County can continue to provide significant property tax relief to our constituents.” 

Hallstrom said he rejected the counties’ black-and-white characterization that eliminating inheritance tax would necessitate an increase in property taxes. And regardless of which of these competing proposals gains the most traction, Hallstrom underscored that he, like Clements, ultimately has his sights set on eliminating this tax altogether, which would put Nebraska on par with nearly every other state in the country. 

“I think we can all agree that Nebraska families and business owners must make their budgets work, often in the face of increasing costs on things like utilities, insurance and groceries,” he said to close his testimony. “And while it may require tough decisions they’d rather not have to make, they find a way to do so – our counties should find a way to follow suit.” 

Contrasting this discussion to that from Clements’ bill last month, Senator Brad von Gillern, chair of the revenue committee, summed up the day’s testimony succinctly. 

“I think everyone who has testified in opposition would say, ‘I’m fine with making the inheritance tax go away as long as we can make up the money somewhere else.’ So the issue is, how do we cover the expenses, how do we cover the lost revenue? I don’t sense that there’s any love for the inheritance tax, it’s the need for the revenue.” 

Hallstrom’s proposal, which would introduce this issue as a post-constitutional amendment to be voted on in the November 2026 general election, does not answer that question. Hallstrom, for his part, acknowledged there are camps that believe full elimination is the correct path forward, and others that favor establishing a replacement revenue program, and asked the committee to consider both options, especially since Clements – who is a cosponsor of Hallstrom’s proposal as well – has signified his bill as one of this session’s legislative priorities. 

“We’re hearing a lot of debate and discussion at the federal level about wasteful spending, and I’m assuming we’ve got some of the same [discussions] at the county level as well. I think Henry Ford once said, ‘If you always do what you always did then you’ll always get what you always got.’ And I think there’s a movement to do things differently than we’ve always done it at the county level, and if some of those things can be done... I certainly am more than willing to look at Senator Clements’ proposal and try to do this incrementally if we can’t afford [replacing] $84 million in one fell swoop, the $33 million he’s got on the table in LB468 is certainly a good first step.” 

No immediate action on LR13CA was taken at the hearing on March 12. Clements designated his bill, LB468, as priority legislation on the same day.