Gov. Phil Murphy has signed legislation into law that will allow municipalities to establish charitable funds into which taxpayers can make donations in return for a property tax credit.
Murphy said he took the action on May 4 to protect New Jersey taxpayers from an increase in the federal income tax as a result of the Trump Administration’s cap on the state and local tax deduction (SALT).
“What the Trump Administration enacted with the SALT cap was nothing more than a tax hike on our working and middle-class families and seniors,” Murphy said. “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. Getting this right is one of our administration’s most important tasks in creating a stronger and fairer New Jersey.”
U.S. Sen. Cory Booker (D-NJ) said, “We know New Jersey families and communities will be among the hardest hit under the disastrous, partisan tax law, with potentially long-lasting effects on services, property value, education and public safety. I applaud Gov. Murphy, senators Stephen Sweeney and Paul Sarlo, assembly members John McKeon, Mila Jasey and Roy Freiman, and their colleagues for taking this important step to protect hardworking New Jersey families.”
According to a press release from Murphy’s office, the federal tax law will hurt many New Jersey taxpayers who pay more than $10,000 in state and local property taxes. Estimates indicate more than one in 10 New Jersey households will see an increase in their federal income taxes.
To mitigate the federal tax law, the legislation, S-1893, allows taxpayers to donate to a charitable fund established by their municipality, county or school district. In return for their donation, the taxpayer will receive a credit on their property tax bill of up to 90 percent of the donation, according to the press release.
Taxpayers would then be able to claim their donation as a charitable deduction on their federal income tax return, preserving the deduction homeowners enjoyed for the more than 100 years since the federal income tax was instituted in 1913, according to the press release.
Officials in at least one Monmouth County town, Marlboro, went on record earlier this year and supported the state legislation Murphy ultimately signed on May 4.
On Jan. 18, the Marlboro Township Council passed a resolution supporting what was then a bill in the Legislature. Officials said it was not known if the creation of charitable accounts to pay the operating expenses of municipalities and school districts would be approved by the federal Internal Revenue Service.
At that time, Mayor Jonathan Hornik said, “I asked the council to consider this resolution in regard to efforts being made on a state level where we can recharacterize [property tax] payments being made by our residents as charitable contributions.
“[This change would] help states like New Jersey and California which are severely affected by the new tax reform act. … The center of the problem is that our state and local income tax payments cannot be deducted above $10,000.
“In a town like Marlboro, there are people whose taxes are above $10,000 and it has a real impact on our community. While I have no idea if this [charitable contribution plan] will be doable, ultimately it is going to be up to the IRS to determine if this is doable,” Hornik said.
The IRS did not respond to a request for comment regarding Murphy’s decision to sign the legislation into law and allow municipalities to establish charitable funds into which taxpayers can make donations in return for a property tax credit.