Higher tax on Nebraska house sales could cut inheritance tax (2024)

LINCOLN — Nebraska lawmakers backed a plan Tuesday to raise a tax on real estate sales by 44% and use most of the revenue to cut inheritance taxes.

The Legislature gave 27-10 first-round approval to an amended version of Legislative Bill 1363, introduced by State Sen. Mike McDonnell of Omaha. But some lawmakers warned that they would not vote for the bill again without changes.

“I would be adamantly opposed, kicking and screaming, to any use of the doc stamp tax other than current uses and the inheritance tax,” said Sen. Mike Jacobson of North Platte.

Nebraska’s documentary stamp tax is paid when real estate is sold. At the current rate of $2.25 per $1,000 of value, the tax brought in $39 million statewide in 2022.

Current law splits the revenue five ways, with most going for housing-related programs, some going to counties and some to a state program that prepares sites and buildings for economic development projects.

McDonnell’s original proposal would have increased the tax rate by $1.25, with most of the additional revenue going for new uses. Those included programs to help Offutt Air Force Base retirees make the transition to civilian employment and to boost mental health care for veterans, support health centers serving uninsured people, start a new state grant office to pursue available funds, boost the state film office and support innovation hub and entrepreneurship projects.

He said he looked to the documentary stamp tax as a source of funding for those programs because it was last increased in 2005 and has not kept up with inflation. With the increase, he argued that Nebraska’s tax would still be lower than 23 other states.

But the bill ran into opposition last week. To win support, McDonnell negotiated an agreement with Sen. Rob Clements of Elmwood to combine the documentary stamp tax increase with Clements’ effort to eliminate Nebraska’s inheritance tax.

Clements introduced a bill this year to phase out the inheritance tax over five years. But he told colleagues last week that he did not expect LB 1067 could pass because of opposition from counties, which currently get the inheritance tax proceeds. Counties are projected to get about $120 million from the inheritance tax in the fiscal year starting July 1.

The compromise amendment on LB 1363 would use documentary stamp taxes to fill the budget hole for counties. It would reduce inheritance tax rates, but not eliminate the tax, and would offset the losses by more than doubling the amount of documentary stamp tax revenue going to counties.

Under the amendment, the inheritance tax rate for aunts, uncles, nieces and nephews would drop to 8%, down from 11% currently, while the rate for unrelated heirs would also drop to 8%, down from 15%.

The amendment would bring in $17 million more in documentary stamp tax revenues. It would increase the rate by $1 per $1,000, bringing it up to $3.25, with 65 cents of the increase going to counties and the rest being divided up among the new uses.

On a house sold for $250,000, the documentary stamp tax would go up $250 under the amended version of the bill — from $562.50 to $812.50.

Some lawmakers argued against either version of the bill. Sen. Robert Dover of Norfolk said he wants to see the inheritance tax ended but not by increasing a tax on housing costs. He said the documentary stamp tax revenue should be used for housing programs, not as a means to pay for unrelated programs.

Sen. Machaela Cavanaugh of Omaha also argued against increasing the tax and taking the proceeds for the proposed uses. She said the proposal amounts to paying for government through fees, which she said was a tactic used by politicians to claim that they are holding down taxes and general fund spending.