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Murphy advances rules for SALT work-around despite IRS threats

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Gov. Phil Murphy signing the State and Local Tax Deduction into law in East Rutherford in May of this year.
Gov. Phil Murphy signing the State and Local Tax Deduction into law in East Rutherford in May of this year. - ()

The Murphy administration plans to push ahead with the implementation of rules that would allow a state to circumvent the federal cap for state and local taxes, despite a push to clamp down on such efforts.

The Division of Local Government Services on Tuesday unveiled the rules and bylaws outlining how residents can pay their property taxes in the form of charitable contributions to their municipality or county of residence.

Once a local government establishes a charitable fund, it could give credits for up to 90 percent of a taxpayer's contribution to the fund.

The rulemaking follows a law Gov. Phil Murphy signed in May that allows towns to collect property taxes in the form of charitable contributions. The law came about after the 2017 federal tax law capped those deductions at $10,000. Many state residents pay much higher taxes than the federal cap.

“In light of Washington’s recent efforts to punish net-donor states like New Jersey through the federal income tax code, our administration is making it easier for New Jersey’s hard-working taxpayers and property owners to reinvest their tax dollars in their own communities,” Murphy said in a prepared statement.

“Although the IRS has announced plans to end the deductibility of such contributions, I remain committed to challenging that decision. If and when the IRS finalizes its rules, we’ll see them in court.”

- Attorney General Gurbir Grewal

In August, the Internal Revenue Service unveiled new rules that would prevent residents of high-tax states from paying their property taxes as charitable contributions by mandating that if a taxpayer received a benefit from their local government for state or local taxes, they would then have to reduce the amount claimed for charitable deductions on their federal tax returns.

The IRS’ proposed rules allow charitable deductions to be claimed in full up to 15 percent, and in response the DLGS’s rules, allow residents to receive a 15 percent credit in their donation.

The DLGS rules allow money from the charitable funds to be used for purposes such as redevelopment and economic development, public safety, social services, public health, recreation, open space, public libraries, housing and code enforcement and capital improvement.

Public officials and state lawmakers have vowed pushback against the Trump administration’s efforts to clamp down on high-tax states seeking to bypass the SALT cap.

“Although the IRS has announced plans to end the deductibility of such contributions, I remain committed to challenging that decision. If and when the IRS finalizes its rules, we’ll see them in court,” Attorney General Gurbir Grewal wrote Tuesday.

New Jersey is already a plaintiff to a multistate suit that includes Connecticut, Maryland and New York that seeks to prevent the IRS and U.S. Department of Treasury from enforcing the cap.

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Daniel J. Munoz

Daniel J. Munoz

Daniel Munoz covers politics and state government for NJBIZ. You can contact him at dmunoz@njbiz.com.

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Dave Maloney October 2, 2018 2:23 pm

I have an idea, how about we reduce spending and taxes instead of setting yourself up for an audit or worse.

Gil October 1, 2018 10:52 am

NJ is in a tax conundrum. The middleclass is getting sacked on all sides. Big corps are leaving and taking high paying jobs to other states, because....well, they can. That leaves the tax base decimated and unable to handle the current cost structure in many locales, even state level.

The local & state govt have traditionally provided public workers with decent pay and great benefits. The pension system has certainly been abused beyond a point of reason and is to big to be managed efficiently or effectively. But the benefits public workers still enjoy has been mostly stripped from private sector with those costs being put back to the employees through ever increasingly higher contributions.

At the federal level, NJ representatives have for decades not fought hard enough to get a fair share of federal spending vs what NJ residents pay in federal taxes. the fact we have to beg for federal transportation funds to rebuild 100+ yr old tunnels that are a main artery to the metro economic functions is beyond insane. And the price is too big to be borne by additional taxes and fees that will go to a privatized tunnel.

No Easy answers, but the reality is NJ needs to stop getting screwed at the federal level and get the public employment costs in alignment with the private sector tax revenue base.

Joe September 25, 2018 11:48 pm

This article and the basis for it are total nonsense. There is not great detriment to NJ from tax reform and there is no way that property taxes that pay for essential services is ever going to be considered charity, unless municipalities admit that 90 percent of what they provide - and we pay for is worthless. This is a last minute political ploy by the governor and you should know better

Unhappy tax payer September 26, 2018 6:41 am

I agree with the other comments about lowering our taxes, instead of work arounds. One question, do I not have to pay my taxes anymore if it is a charity donation?

jemilius September 26, 2018 8:59 am

Gov. Murphy and other "blue state Governors" protest this rule because it will force these Governors to stop increasing tax's on their state middle class tax payers. Murphy should look at reducing NJ's spending vs increasing our tax's on services etc.. which he did with the 2019 budget. Murphy has a complete disconnect with the middle class in NJ. Instead he gives the public sector unions huge pay and benefit increases which are paid for by taxing the middle class taxpayers in NJ. NJ'
s multi millionaire Gov. has no idea the burden he is placing on us, we are already over extended Gov..... stop spending "our" money and start reducing our tax's or u will be a 1 term Gov. like ur idol... Gov. Corzine !!

Jeff September 26, 2018 7:20 pm

STOP spending my money to fight a losing battle in the vein hope that you can find a way to continue to spend my money. Hail Mary at best. Fix the root cause of the problem which is waste and mismanagement. I for one WON’T be sticking around this state much longer the way this is heading.

Mike September 25, 2018 3:16 pm

how about lowering my taxes you dolts.

Randolph Rogers September 25, 2018 3:37 pm

Instead of playing a losing game with Washington, our political leaders (if they were actually leaders) should be figuring out how to lower the onerous tax burden put on NJ residents by its bloated government bureaucracy. Do we need state, county and local government? No. Do we need 603 school districts? No. Until Trenton gets serious about cutting unnecessary and duplicative levels of government, NJ will continue to lose businesses and citizens to states that don't overtax their residents. That should be the focus, not playing games with SALT to justify the unsustainable status quo.