The Murphy administration took the next step in its showdown with the federal government over the SALT deduction by issuing regulations for local governments seeking to set up charitable funds that would allow taxpayers to bypass the new cap.
“By adopting these new regulations, we are permitting our local governments to establish charitable funds that will help them spend local money where it is most needed, funding vital public services and investing in public infrastructure here in New Jersey,” Gov. Phil Murphy said.
The regulations will implement the law he signed in May in response to the new $10,000 cap on federal SALT deductions. The bill authorizes municipalities, counties, and school districts to establish charitable funds to be used for public purposes, and then provide donors a local tax credit of up to 90 percent of their total donation.
The IRS responded this summer by issuing its own regulations, saying any charitable contributions that receive more than a 15 percent local tax credit would not be deductible. By issuing the state regulations, Murphy is signaling that New Jersey will implement the state law in spite of the IRS rules.
The administration also made it clear that it was not going to take the federal government’s actions lying down; it joined other states in suing the federal government over the constitutionality of the imposition of the $10,000 limitation on deductions for state and local taxes.
“Today, the State of New Jersey has taken another step forward in responding to the unconstitutional cap on the deduction for state and local taxes that Congress adopted last year,” said New Jersey Attorney General Gurbir Grewal. “If and when the IRS finalizes its rules, we’ll see them in court.”