[slideshow_deploy id=’899′]
BY MIKE OLOHAN
BERGEN COUNTY, NEW JERSEY — Hoping to get a green light from the Internal Revenue Service Feb. 15 about a proposal to allow municipalities to set up a charitable trust fund and allow taxpayers to avoid a new $10,000 limit on tax deductions, Rep. Josh Gottheimer (D-5) appeared to get a yellow warning light instead.
Gottheimer met with IRS acting commissioner David J Kautter and pushed for an unusual proposal he has championed: setting up a local charitable trust that would allow taxpayers to pay into it and get credit for taxes that exceed the $10,000 state and local tax, or SALT, limit imposed by the federal Tax Cut and Jobs Act as of Jan. 1.
“While I was encouraged by the meeting, I will continue to hold the IRS’s feet to the fire and fight for tax relief for North Jersey,” he said following the meeting.
After Gottheimer told Kautter that other states offer credits from state taxes for donations that are also eligible for federal deductions, Gottheimer said Kautter was noncommittal.
Gottheimer was optimistic and even encouraged by Kautter’s reaction, he said later, as Kautter did not say no to the proposal.
Prepaid 2018 taxes
Gottheimer and Rep. Leonard Lance (R-Hunterdon) met with Kautter and raised the concern that New Jersey homeowners prepaid more than $300 million in 2018 taxes before Dec. 31, 2017, hoping to avoid the new $10,000 federal limit on state and local tax deductions.
Kautter told the legislators he would review their request and they also offered a copy of then-Gov. Chris Christie’s executive order directing municipal tax offices to remain open through Dec. 31 to process taxpayer prepayments. In late December, the IRS ruled that taxpayers could only deduct 2018 tax prepayments if they had been billed, or assessed, for the taxes by Dec. 31.
Over the past month, municipalities have begun to pass resolutions and set up an administrative and legal process to return taxpayer prepayments for non-billed quarterly payments—should they request them. By the end of 2017, most towns had only billed taxpayers in advance for the first two quarters of 2018.
However, scores of homeowners prepaid a full year of taxes hoping to take the full deduction in 2017.
[slideshow_deploy id=’899′]
Mayors said uncertain
When Gottheimer first proposed legislation to allow municipalities to set up charitable trusts, a survey of Pascack and Northern Valley mayors revealed a lot of interest and hope that a charitable trust would be legally feasible.
However, while enthusiasm exists still, some mayors appear wary of the plan’s future.
While his residents prepaid almost $10 million in 2018 taxes before the end of 2017, Tenafly Mayor Peter Rustin said that Gottheimer “can’t offer any guarantees.” He said the state Legislature needs to pass a law that provides some mechanism to enable taxpayers to deduct state and local taxes.
Rustin, along with other Bergen County mayors, met with Gottheimer almost two weeks ago and discussed the SALT deduction limit and how to provide relief to local taxpayers.
Although he held out hope that a solution exists for taxpayers to get federal tax credit for state and local tax payments over $10,000, Rustin expressed hesitation about a charitable trust.
“But if the Legislature makes it legal, we’d be foolish not to set something up,” he added.
Alpine Mayor Paul Tomasko said that his borough “would definitely be open to this” but believes legislators must first pass enabling legislation that would show them how to set up such a charitable trust. He said the municipalities need directives and guidance from the state to create such a local entity.
Park Ridge Mayor Keith Miscianga—one of the proposal’s original supporters who joined Gottheimer at an introductory news conference—still believes but offers another option.
“I still support this but would hope to see the state look into the possibility of payroll tax help as well,” Miscianga wrote Feb. 20.
“I would like to have Park Ridge be among the first New Jersey towns to implement this program and we are now waiting for the state give direction on how we may legally put it in place,” he added.
[slideshow_deploy id=’899′]
Awaiting Legislature
Old Tappan Mayor John Kramer said he asked his chief financial officer to listen to a recent online discussion on such trusts but the proposal “has nothing to back it up yet. If something is put into effect and it’s legal to do it, we’ll do it. We’re really waiting to hear from the Legislature,” he said.
Gottheimer’s bill, S-1893, was posted Feb. 15 by members of Senate Budget and Appropriations Committee, and approved. Whether the bill passes IRS muster remains to be seen as many tax experts have weighed in on its pros and cons.
However, Gov. Phil Murphy has spoken in favor of the charitable trust fund idea and said he would sign it.
President Donald Trump signed a massive new tax law Dec. 22, 2017, and its SALT deduction limit disproportionately affects New Jersey and other high tax states.