NJBIA's Public Policy Forum: The Road to Recovery REGISTER

Gov. Phil Murphy is eyeing a federal tax reform workaround for New Jersey in the short term, and a long-term solution to the state’s property tax woes.

Speaking at the New Jersey Conference of Mayors event in Trenton on Thursday, Murphy urged the Legislature to put forth a bill where towns and school districts can establish charitable funds instead of collecting property taxes. Taxpayers, Murphy said, would be able to deduct those funds as charitable contributions on federal returns.

Murphy said this would be an immediate way to counter the new federal tax law that caps the limit on state and local property tax deductions at $10,000 – which he called a “gut punch” from Congress and President Trump to New Jersey.

“Certainly, this is no replacement for meaningful property tax relief,” Murphy said. “I get that. We all know that there are no easy fixes. But while we commit to the long-term effort, let’s also commit to providing common sense and immediate relief for our taxpayers.”

Murphy has already said New Jersey will join with New York and Connecticut to legally challenge the constitutionality of the new cap, and stressed to municipal leaders at the Conference of Mayors that the loss of the full state and local tax deduction will drive down home values in the Garden State.

Murphy said if towns are able to establish charitable funds that pay for local services, homeowners would get credits on their property tax bills for any amount they donate. He said 33 other states have similar programs which has the blessing of the Internal Revenue Service.

Some tax experts, however, say case law and IRS regulations generally require charitable intent for a contribution to be deductible – and that individuals should not be receiving a substantial benefit from a contribution.

Nevertheless, several municipal leaders have indicated an interest in the workaround. On Friday, Murphy was joined by five Monmouth County mayors from both sides of the aisle who pledged to allow taxpayers in their towns to make payments to local governments as charitable donations.

Assembly Republican Leader Jon Bramnick and Senate President Steve Sweeney said on Thursday the idea is worth pursuing legislatively.

Both, however, stressed that New Jersey is now at a breaking point with its tax burdens – and long-term tax reform should be the priority as the Governor prepares his first budget. In the past several weeks, Sweeney has convened a panel to study tax reform and has stated that now is not the time to implement an increased millionaires’ tax, which he previously sponsored.

“It’s not too hard to figure out,” Sweeney said. “Either you’re going to have a big hole or you’re going to have to raise a lot of taxes. I’m of the mindset that we’re not going to raise taxes.”

“The taxpayers have had enough, and I stand with them saying, ‘Let’s look at other ways to make this thing work before we go back and ask for more money.’ Because people can leave.”