SALT UPDATE -- New Jersey Releases Implementation Rules for SALT Charitable Contribution Law

New Jersey SALT Legislation

New Jersey Moves Forward with State Work-Around Despite Continued Wrangling with IRS and Trump Administration

The New Jersey Municipal Management Association (NJMMA) spent the bulk of its one-day conference in June discussing SALT, the state and local tax deduction component of the 2017 federal tax reform. At the time, experts from the New Jersey Division of Local Government Services let NJMMA members know that it was proceeding with the development of rules for the implementation of the SALT Charitable Contribution Law (P.L. 2018, c. 11) signed by Governor Murphy on May 4.

On Tuesday, September 25, backed by the Governor, the Division released the rules for implementation of the law, which permits 90 percent of a property taxpayer’s donation to a designated charitable fund to be credited toward the taxpayer’s property tax obligation, subject to certain limitations.  The DLGS rules allow money from the charitable trust funds to be used for redevelopment and economic development, public safety, social services, public health, recreation, open space, public libraries, housing and code enforcement and capital improvement.

Back in August, the Internal Revenue Service (IRS) has stated that they will not support New Jersey’s legislation regarding charitable trusts to reduce tax liability. Furthermore, the IRS rolled out its proposed rules preventing residents of high-tax states, including New Jersey, from off-setting their property taxes through charitable contributions. In direct contrast to those states who developed legislation to combat the new regulation, the IRS has mandated that if a taxpayer received a benefit from their local government for state or local taxes, they are required to reduce the level of charitable deductions claimed on their federal tax returns. The IRS’ proposed rules allow charitable deductions to be claimed in full up to 15 percent.

A large number of public officials and lawmakers, both in New Jersey and across the country continue to vow pushback against the efforts of the Trump administration to squelch the efforts of states to soften the blow on citizen’s wallets by providing a work around. New Jersey is also part of a multi-state lawsuit to prevent the IRS and the United States Treasury from enforcing 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,” said New Jersey Attorney General Gurbir Grewal on September 24.

The NJMMA reminds its members that the success of SALT in New Jersey still comes with a number of unknowns, and that a number of the reservations voiced by expert panelists in June still exist. The organization stands by the prevailing recommendation from experts that municipalities proceed with caution, or consider holding off, on the implementation of SALT until the final IRS decisions are issued and lawsuits resolved.

For more on the implementation rules for the New Jersey SALT Charitable Contribution Law from the Division of Local Government Services, click here.