Princeton Mayor Liz Lempert said this week that municipal officials are holding off on any decision about creating a charitable fund to which residents can contribute money, obtain credit toward their property tax bill and then claim a charitable deduction on their federal taxes.
Lempert’s comments came in response to a new state law that seeks to counter changes Congress made last year to cap, at $10,000, the income tax deduction for state and local taxes (SALT).
On May 4, Democratic Gov. Phil Murphy signed legislation allowing a municipal government, school district or county to establish charitable funds that have “one or more specified public purposes” that are “more limited than the general purpose” of the governmental entity creating the fund.
Contributors would get a credit of up to 90 percent of their donations toward their property tax bill, the Murphy administration has said. They then could claim the charitable deduction on their federal taxes.
Murphy and other Democrats in New Jersey were critical of federal changes seen as punishing high tax, Democratic states like New Jersey.
“With this legislation, New Jersey authorizes municipalities to allow their taxpayers to make charitable contributions toward important governmental goals in exchange for up to a dollar-per-dollar reduction in their taxes, joining 33 other states that have allowed credits in exchange for charitable contributions without IRS interference,” Murphy said.
The governor did not specify what he meant by “governmental goals.” The Trump administration has rejected the notion that property taxes to pay for core government services like police and fire protection can be classified as charitable donations.
In January, around the time when New Jersey and other states were floating the charitable fund idea, U.S. Treasury Secretary Steven Mnuchin called it “one of the more ridiculous comments, to think you can take a real estate tax you are required to make and dress that up as a charitable donation. I hope the states are more focused on cutting their budgets and giving tax cuts to their people than they are on trying to evade the law.”
On May 7, Lempert said Princeton was hit hard by the federal tax law changes.
The average property tax bill in Princeton was $18,894 last year, the highest in Mercer County, according to the state.
Toward the end of 2017, residents could be seen lining up in town hall to pre-pay their property tax bills for 2018 so they could get their full credit as a tax deduction.
Lempert said state officials need to create guidelines for how money paid to charitable funds would be administered. She said the New Jersey State League of Municipalities is exploring the issue.
“Between those two entities, I think before doing anything, we’re waiting for additional guidance,” she said.
She cited news reports in which the Trump administration has questioned whether the New Jersey law would pass legal muster.
“We’re just watching an waiting,” she said.
Lempert said she is “definitely hoping there will be some type of relief” from the federal tax law changes.
“And if this is it, we’re ready to move very quickly,” she said. “But we’re cautious because we don’t want to set something up that residents will be relying on and then have the rug pulled out from under them.”
