The Senate Budget & Appropriations Committee advanced a bill on Thursday that would allow towns and school districts to establish charitable funds for use of services which could be deducted on federal tax returns, even under the new tax laws.

S-1893, co-sponsored by Senator Paul Sarlo (D-36) and Senate President Steve Sweeney (D-3), would authorize municipalities, counties or school districts to establish charitable funds for specific purposes, and permits a property tax credit for certain donations.

The legislation follows Gov. Murphy’s wish to counter the new federal tax law that caps the limit on state and local property tax deductions at $10,000, which is anticipated to have a negative impact on property values in high-tax states like New Jersey.

“I understand there are some concerns with this bill and I’m not saying by any means this is a long-term solution,” Sarlo said. “But we need to do something to defend ourselves in the interim for this SALT (state and local tax) appeal.”

Speaking at the New Jersey Conference of Mayors last week, 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.

Sarlo said 30 states have similar programs, with the blessing of the Internal Revenue Service.

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

Some members of the committee on Thursday shared the same concerns.

“Believe me, I want to fix this issue, but the rules in regards to deductible donations say you’ve got to give something and get nothing in return,” said Sen. Steve Oroho (R-24). “I don’t know how we can are argue that we’re not getting anything in return.”

“I’ll vote for it, but I’m not at all optimistic the IRS will go along with it,” added Sen. Samuel D. Thompson (R-12).

Sweeney reiterated that the proposed tax workaround is not a holistic answer for New Jersey’s high tax burdens and the panel he convened to study tax reform in New Jersey is looking at the overall cost of government in the state.

“But we’re dealing with a fire right now and we’re trying to hold back the fire,” Sweeney said.

 

7 responses to “Senate Proposes Workaround Legislation to Counter New Federal Tax Law”

  1. Frank Ritota says:

    We will soon see a further loss of middle and higher income tax payers. They will be leaving this state in even higher numbers if things are not corrected within this state.

    • JoeP says:

      Couldn’t agree more. If this new Governor implements his plans, even more people will leave this state. Then there is a good possibility we will go bankrupt because there will not be enough people to pay all the taxes.

  2. SteveP says:

    If municipalities establish themselves as charitable organizations, how can they force property owners to pay taxes?
    Like many others, I will be negatively affected by the SALT treatment, however, I don’t expect the Federal government to subsidize my taxes because of the inefficiencies of our state and local governments. The reforms need to start here.
    Lastly, New Jersey has been limiting the property tax deduction of its own residents to $10,000 for years. I find this all very hypocritical.

    • Gary says:

      You are correct, we are limited to $10,000 real estate tax on our NJ income tax return. If we take it as charitable contribution then we won’t get the NJ income tax return deduction for real estate tax and you can’t take a deduction on the NJ return for charitable contributions.

  3. Gary says:

    I would like to know how you will be able to deduct the charitable contribution if in return you get the benefit of the same amount as a reduction in real estate taxes? Where in the IRS regulations is that allowed.

    Instead of trying to evade not being able to deduct the taxes, our elected officials should be trying to figure out why we are the highest paying real estate tax state in the nation and fix it. Compare us to all the lower paying states and focus on that instead of things like the $15 minimum wage that we already voted on years ago. How can Mr. Murphy just go in and change what we all previously voted on without another vote by us.

  4. Thomas W. says:

    “But we’re dealing with a fire right now & trying to hold back the fire,” Sweeney said.

    That fire was simply a long overdue result of the glowing embers from years of undisciplined spending. Our new Governor openly cited during his campaign he envisioned over a $Billion in new spending, offering no insight to how he intended to fund it. We still haven’t heard of a renewal of the 2% arbitration caps.

    Too often politicians are more focused on appeasing special interest groups then doing the necessary analysis that helps them understand the budget. They palm the review process over to appointees who themselves are lobbied to influence their vision of the challenges.

    They’d rather find a gimmick to cut the federal tax then find opportunities to reign in their spending. A sad commentary for taxpayers.

  5. Steve says:

    Clearly the problem is NJ government spending is completely out of control. Now, rather than correcting what is wrong with the state, as well as driving tens of thousands to states that control their spending, the state is going to teach everyone the art of tax evasion! Exactly who voted for this Governor???