09 February 2018

Who’s SALTy? A Roundup of the States Trying to Use “Charitable” Donations as SALT Deduction Cap Workarounds

As states inch closer to implementing policies using the charitable deduction as an avenue to skirt the new cap on the deduction for state and local taxes (SALT), a recent opinion piece by Suzanne Garment and Leslie Lenkowsky in The Chronicle of Philanthropy details the importance of treating philanthropic contributions and government money as two separate entities. As you know, it is an issue we weighed in on in our last blog post.

With these two pieces acting as a backdrop, we think it would be useful to compile a list of states that are currently considering policies using charitable contributions as a replacement for state and local taxes. This list will likely continue to grow:

*UPDATED: 2.27.2018

  • California
    • Championed by California Senate President pro Tem, Kevin de Leon, the California State Senate passed SB 227 in a 27-7 vote on January 31, 2018. The bill, which must pass the California House (who must also establish the state’s charitable organization), would allow Californians to “donate” 85 percent of their state income and property taxes to the “California Excellence Fund” and receive a dollar for dollar tax credit on these donations.
  • New York
    • Governor Andrew Cuomo, who plans to sue the federal government with New Jersey and Connecticut over the constitutionality of the TCJA and considers the bill, “economic civil war” against his state and others, is considering a “charitable” workaround to the SALT caps similar to that of California.
    • In his budget address on January 16, 2018, Cuomo outlined the methods he has in store for New York to circumvent the SALT cap. While the adoption of a state payroll tax is Cuomo’s more likely option, he did not rule out the possibility of a California-esque workaround in his address.
    • Governor Cuomo, on February 9, 2018, launched the “Tax Fairness for New York” campaign which, with the support of various local leaders, will work toward solutions to the SALT cap.
  • New Jersey*
    • On 2.26.2018, the New Jersey State Senate passed S1893, the senate’s version of a bill that would allow allow homeowners to pay “charitable contributions” to local governments in lieu of property taxes to get around the new $10,000 cap on the amount of state and local taxes people can deduct from their federal returns, by a 28-9 vote.
      • Supporters of the bill admit the plan may not work as tax law surrounding the issue is murky, but claim their support of the bill is, “standing on the side of taxpayers.” Sen. Troy Singleton, D-Burlington
      • Opponents of the bill fear it will give residents, “a false sense of security that we are giving them a charitable deduction,” said Sen. Steven Oroho, R-Sussex, as it is likely the IRS will strike it down.
    • New Jersey Rep. Josh Gottheimer, with support from Governor-elect Phil Murphey and several local mayors, outlined his solution to SALT cap deductions on January 5, 2018. He told CNBC’s Power Lunch: “People would be able to give a charitable contribution to their towns, their municipalities and the towns can give a tax credit on people’s property tax bills,” Gottheimer said.
      • The idea is for local governments to establish or support funds that pay for local services like roads, bridges and police officers. Taxpayers can make voluntary contributions, for which they will get a tax credit.
    • State Senator Joe Pennacchio proposed NJ S-413, which would lift the maximum deduction allowed by the state, reducing the tax burden on New Jersey resident as opposed to Murphy and Gottheimer’s scheme to skirt the SALT cap
  • Connecticut
    • Governor Dannel Malloy pitched a workaround to the new SALT cap that focuses specifically on Connecticut’s property taxes on February 5, 2018. “Malloy proposed allowing municipalities to create a charitable organization that would support town services. In exchange those who donate would get a local property tax credit.”
  • Illinois
    • Illinois lawmakers seem keen to follow California’s lead with a plan to create the Illinois Excellence Fund and allow state residents to donate the equivalent of their state and local property taxes to it for a full tax credit (Illinois has one of the highest property tax burdens in the country) in the works.
  • Oregon
    • Congressman Peter DeFazio urged Oregon’s state lawmakers on January 12, 2018 to, “consider a proposal to redefine state and local taxes as charitable contributions in response to the recent tax overhaul legislation.”
      • DeFazio asked the lawmakers to consider creating a new state fund to which Oregon taxpayers could donate the no-longer deductible portion of their owed income. Taxpayers could then write off that donation as a charitable deduction, encouraging Oregonians to donate to the state government and then receiving a credit for their gift in return.