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.
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.