New Jersey Gov. Phil Murphy signed a bill Friday to let local governments accept property taxes in the form of charitable contributions—an effort to circumvent President Trump’s federal tax overhaul.
The new law (S1893) allows municipalities, counties and school districts to set up charitable funds to pay for public services. Residents who donate to the funds can receive a credit of up to 90 percent toward their property tax bills, and those contributions can then be written off as charitable deductions on their federal taxes.
The plan is designed to be a workaround to the new federal tax law that capped the state and local tax deduction at $10,000, a move said to disproportionately harm high-tax states like New Jersey. Roughly 41 percent of New Jerseyans who filed 2015 tax returns used the SALT deduction, with the average return claiming nearly $18,000 in deductions from SALT, according to the Tax Policy Center.
“Today we are taking a step to restore the property tax relief that the new federal law is set to take away,” Murphy said. “We know that President Trump and the Republican leadership in Congress targeted states like New jersey when they wrote this law.”
But it’s unclear whether the scheme will withstand scrutiny from the Internal Revenue Service.
U.S. Treasury Secretary Steven Mnuchin has called the proposal “ridiculous.” Acting IRS Commissioner David Kautter told a congressional committee in February that charitable contributions can only be deducted if “the primary purpose of the contribution is donative, which is a disinterested and detached interest of generosity.”
Republicans, including those who voted for the bill, have cast doubt on the plan and think lawmakers should instead focus on the underlying issue: New Jersey’s notoriously high property taxes.
“While we should welcome such a deduction if it were given, I am highly skeptical that it can be taken,” Assemblyman Michael Patrick Carroll (R-Morris) said in April. “I fear that in adopting such a proposal in the absence of a definitive ruling by the Internal Revenue Service… we may lead a taxpayer or many a taxpayer to an unfortunate position: owing back taxes, interest and penalties for what amounts to a legislatively-abetted tax fraud.”
Democrats have noted similar but smaller programs exist in 33 other states.
Rep. Josh Gottheimer (D-5), who came up with the idea, has said he is confident in the plan after consulting with legal scholars and accounting experts. He has requested a meeting with the IRS about the issue.
“In Jersey, we don’t just take a punch and snake away to the corner. No, we stand up and fight,” Gottheimer said in a statement.
Murphy also announced two “shared services czars” to help streamline local government and rein in the state’s rising property tax bills: former Summit Mayor Jordan Glatt and former Harding Township Mayor Nicolas Platt.