Some local governments have already starting taking steps to establish the charitable funds after Rep. Josh Gottheimer (D-N.J.) first proposed the idea. | Josh Gottheimer for Congress via Facebook New Jersey Legislature passes SALT workaround

TRENTON — A bill that would allow local governments to accept property taxes in the form of charitable contributions passed the New Jersey Legislature on Thursday and landed on the desk of Gov. Phil Murphy, who has endorsed the effort to circumvent the new federal tax code.

The legislation, which passed the Assembly, 68-1, with one abstention, would authorize municipalities, counties and school districts to create charitable funds that could be used as a revenue source. Local governments could give tax credits to residents who contribute to the fund, allowing them to offset up to 90 percent of their own property tax bills and take a write-off on their federal income taxes.


The approach provided under the bill, NJ S1893 (18R) , would create a workaround to the $10,000 cap on state and local tax deductions imposed by the new federal tax code, H.R. 1 (115). It could also allow some high-income earners subject to the alternative minimum tax to begin deducting their property taxes.

The loss of the full SALT write-off is said to have hit New Jersey and other high-tax states harder than others and is being used to pay for tax cuts elsewhere. Some 41 percent of New Jersey residents who filed 2015 tax returns used the SALT deduction to reduce their total tax bill, according to the Tax Policy Center. Those people wrote off a combined $32.2 billion that year, with the average return claiming nearly $18,000 in deductions from SALT.

“There’s a time for words and then there’s a time for action,” Assemblyman John McKeon (D-Essex) said before the vote. “For all of us, for our constituents, for what the federal government has done to your state with the elimination or reduction of the SALT deductions, it’s time for action.”

The state Senate voted a short time later, 23-12, to concur some small amendments and sent the bill to the governor.

Murphy, a Democrat who took office in January, supports the workaround and had called upon the Legislature to send him the bill. Some local governments have already starting taking steps to establish the charitable funds after Rep. Josh Gottheimer (D-N.J.), who represents parts of Bergen and Sussex counties, first proposed the idea in January.

Some Republicans in the Legislature have said they can’t support the measure for fear they would be leading residents into a dangerous situation in which the federal government could decide to reject their deductions and force them to pay more in the end. Others said the measure was a distraction from the real issue: New Jersey’s ever-growing property taxes.

“It creates a new system of government that is really trying to shirk the real responsibility, which we all share, of actually making our tax system more transparency, fairer and more responsible for the taxpayers — the over-burdened taxpayers — of New Jersey,” state Senate Minority Leader Tom Kean Jr. (R-Union) said.

It remains unclear whether the Internal Revenue Service will allow New Jersey to implement the workaround, which follows a practice that's been used on a smaller scale in other states. But already, Treasury Secretary Steven Mnuchin has slammed this and other workarounds, calling them "ridiculous."

Acting IRS Commissioner David Kautter, testifying before Congress, said charitable contributions qualify for tax deductions only if they're given for truly charitable purposes.

Even some who voted for the measure said they doubt the IRS would approve. Assemblyman Michael Patrick Carroll (R-Morris) called the bill “subterfuge” and said it would benefit “some of the wealthier residents of our state.”

“As a New Jersey resident, I sincerely hope that this far fetched, Rube Goldberg scheme works,” he said before giving a long explanation for why he was skeptical it would.