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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.