WASHINGTON – U.S. Sen. Robert Menendez reacted to Wednesday’s announcement by the Internal Revenue Service that it intends to issue new rules that would unfairly target efforts to protect New Jersey taxpayers from being double-taxed by the Trump Administration’s tax plan that limited state and local tax deductions.
Earlier this month, the senator – a senior member of the Senate Finance Committee that sets national tax policy and the leader in the U.S. Senate in the fight to preserve the state and local tax deduction – joined Gov. Phil Murphy as he signed state legislation which allows municipalities to establish charitable funds where taxpayers can donate in return for a property tax credit.
The Republican federal tax law, which passed the Senate on a strictly party-line vote, is expected to hurt many New Jersey taxpayers who pay more than $10,000 in state and local property taxes. Estimates indicate that more than one-in-10 New Jersey households will see an increase in their federal income taxes.
To mitigate the federal tax law, the state legislation, S-1893, allows taxpayers to donate to a charitable fund established by their municipality, county, or school district. In return for their donation, the taxpayer receives a credit on their property tax bill of up to 90 percent of the donation.
Taxpayers would then be able to claim their donation as a charitable deduction on their federal income tax return, preserving the deduction homeowners enjoyed for the more than 100 years since the federal income tax was instituted in 1913.
The IRS has said it will try to limit these strategies, without giving any details.
“Despite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes,” the IRS wrote in its notice.
Menendez reacted angrily. “The concept of incentivizing charitable contributions with state tax benefits, including credits, has long been found by the IRS to be acceptable,” the senator said. “This is not a theoretical question: 32 states and the District of Columbia have for years implemented similar funds, some of which offer dollar for dollar state or local tax credits in exchange for contributions. The only reasonable conclusion to draw is that the Trump Administration will stop at nothing to hurt New Jersey, and will always put petty partisan politics ahead of the people he has been sworn to serve.”
Menendez added, “As appalling as it was for President Trump and Congressional Republicans to use tax reform as a way to exact political revenge against so-called blue states by limiting the state and local tax deduction, it is absolutely unacceptable to use the IRS as a political weapon to target New Jerseyans. I will not stand for it, and will use every tool at my disposal to protect the taxpayers of New Jersey.”
