Homeowners could get around the new $10,000 cap on property tax deductions on their federal tax returns by turning them into charitable contributions. At least that’s the plan behind a bill approved by the Senate yesterday.
Legislation on interstate tax agreements and Urban Enterprise Zones also saw action.
Property Tax Deduction
Senators voted 28-9 to allow municipalities to set up charitable foundations for the collection of money that would otherwise be paid as property taxes by establishing a framework for creating such charitable funds. Municipalities would decide for themselves whether or not to give their taxpayers the option.
The bill is in response to federal tax reform that limits the amount of state and local taxes individuals would be allowed to deduct from their federal income taxes in the 2018 tax year. The federal tax law caps so-called SALT deductions at $10,000, which is less than many New Jersey homeowners pay annually.
S-1893 (Sarlo, D-36; Sweeney, D-3) would offer a possible way out for those taxpayers since the tax reform law preserves deductions for charitable contributions.
“We won’t sit back and allow the new federal tax law to impose a financial burden on middle class families in New Jersey,” Senate President Steve Sweeney said. “The full deductibility of property taxes has long been the foundation of home ownership and it has helped to sustain the strength of hometown communities.”
Interstate Tax Agreements
Senators also voted to protect New Jersey’s bi-state agreement with Pennsylvania that allows taxpayers to pay income taxes in the state where they live rather than where they work. S-878 (Madden, D-4); Sweeney, D-3) would prevent the NJ Division of Taxation from unilaterally withdrawing from these pacts without legislative approval.
Currently, the division has broad powers to enter into and terminate reciprocal personal income tax agreements, which came to light in 2016 when former Gov. Chris Christie announced that he would terminate the agreement between New Jersey and Pennsylvania. He eventually withdrew the proposal.
Approximately 125,000 New Jersey residents commute to Pennsylvania and another 125,000 make the reverse trip, according to Census Bureau estimates. Pennsylvania has a flat 3.07 percent income-tax rate while New Jersey has a more progressive tax structure with rates from 1.4 percent to 8.97 percent.
Urban Enterprise Zone Designations
The former Urban Enterprise Zones (UEZs) in Bridgeton, Camden, Newark, Plainfield and Trenton would get new life under S-846 (Turner, D-15; Cruz-Perez, D-5), which as approved by the Senate yesterday. The bill would reinstate the designations that expired at the end of 2016.
The UEZ Program provides incentives to encourage businesses to locate to urban areas and create private sector jobs. Under the bill, the UEZ designations of these five cities would be reestablished until Sept. 30, 2019. The bill would also require the UEZ Authority to conduct a comprehensive analysis of the program and to issue a report on its findings on or before the date the Governor’s annual budget message is presented to the Legislature in Feb. 2019.
All three bills now await consideration in the Assembly.