Murphy Signs Tax Bill Into Law That May Not Pass Muster With IRS

Gov. Phil Murphy has signed a bill into law that's a workaround for the Trump tax bill and its potentially negative impact on New Jersey. But some lawmakers say it likely won't pass muster with the IRS.

Murphy signed legislation on Friday allowing municipalities to establish charitable funds where taxpayers can donate in return for a property tax credit.

The legislation is intended to protect New Jersey taxpayers from a potential 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,” said Murphy.

But Sen. Joe Pennacchio, R-Morris, who did not vote for the legislation, cautioned against what he called Murphy’s "scheme" that he says will likely not pass IRS tax review. Pennacchio said he strongly suggests that New Jersey families "check with their accountants before entering into this tax scheme."

“Possible implications may be fines, interest, penalties, or an eventual audit,” he said.

Under the 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.

The legislation, sponsored by Assembly Democrats John McKeon, Mila Jasey and Roy Freiman, permits a local unit, consisting of a municipality, county or school district, to establish one or more charitable funds for specific public purposes, and permit local property tax credits in association with such donations.

“Some New Jersey towns are already looking into this concept,” said Jasey, D-Essex, Morris. “Taxpayers need relief from President Trump’s nearsighted tax cuts and allowing municipalities to create a charitable fund is a way which makes sense.”

Murphy says the legislation allows New Jersey to join 33 other states that have allowed credits in exchange for charitable contributions "without IRS interference," he said.

"Getting this right is one of our administration’s most important tasks in creating a stronger and fairer New Jersey,” he said.

The Assembly approved the bill, 69-0-3, on April 12. The Senate approved it by a 23-12 vote.

Pennacchio has offered legislation, S-413, that would lift the maximum deduction for property taxes allowed by the state, reducing the tax burden on New Jersey residents.

“While I agree with the intentions of Governor Murphy, I stress the importance of a real property tax relief plan,” Pennacchio said. “Trenton must take responsibility for our high property tax problem and immediately create a solution, such as removing New Jersey’s property tax deduction cap. The removal of our cap is instant relief which doesn’t depend on the IRS for approval.”

“New Jersey leads the nation in highest property taxes,” Pennacchio added. “This workaround of federal tax code may place our citizens in harm’s way and expose them to unnecessary IRS fines. However, by eliminating our state’s property tax deduction cap, we can provide New Jerseyans with true tax relief.”

Mayoral Statements of Support

In a press release, Murphy presented several mayors who offered support:

Morristown Mayor Timothy Dougherty: “As Mayor of Morristown, I fully support Governor Murphy's new State and Local Tax (SALT) legislation, which will create a framework for homeowners across New Jersey to continue deducting their property taxes. A significant number of Morristown homeowners will be negatively impacted by the recent changes in federal tax law, and I believe this SALT legislation will greatly benefit these individuals. Allowing local governments to accept property tax payments in the form of charitable contributions will let municipalities like Morristown provide tax credits to these property owners. These tax credits will offset the majority of their property tax bills and maintain the write-off on their federal income taxes. I'm proud that Governor Murphy and the leaders of New Jersey are working to preserve the current tax deductions and improve the financial stability of New Jersey homeowners.”

Haledon Mayor Domenick Stampone: "The Republican tax bill caps the state and local tax (SALT) deduction at $10,000 even though #NJ sends billions of dollars more to DC than it receives in services. I support Governor Murphy's charitable tax fund legislation which is especially important for #Haledon's taxpayers."

Governor Murphy photo