Municipalities in South Jersey are in no rush to conform to a new state law that will allow residents to pay their property taxes as a form of charity.
Most think the new law will be quashed by the IRS.
“If I was a betting man, I would bet that this isn’t going to work,” said Brian Ashcraft, corporate regional director of Liberty Tax Service. “At this point, it’s in the hands of the IRS and the federal government.”
Earlier this year, the state Legislature passed a bill to counter the Tax Cuts and Jobs Act, which put a $10,000 cap on state and local tax deductions. The Tax Cuts and Jobs Act, commonly referred to as the GOP tax cuts, penalized taxpayers in states such as New Jersey, New York and California, where property taxes commonly exceed that.
The new state law, signed by Gov. Phil Murphy in May, calls for municipalities to let residents make charitable donations to the town in the same amount they would have paid in local taxes and give homeowners credits on their property-tax bills for what they donate.
Charitable donations are still tax-deductible under federal law.
State Sen. Jeff Van Drew, D-Cape May, Cumberland, Atlantic, who voted in favor of the law, said he is unaware of any municipalities that have conformed to it in his district.
“It’ll be interesting to see if this law holds up,” Van Drew said. “The main part of this was to help people in New Jersey and send a message to (the federal government) that this is unfair and it’s hurting people in our state.”
Van Drew added while many South Jersey taxpayers fall under the $10,000 cap, it could still have a direct effect on the area if people in Central and North Jersey decide to move out of state.
“A lot of the revenue for our budget comes from Central and North Jersey, so if people there decide they have had enough and leave, it could potentially raise taxes again for everyone around the state,” Van Drew said.
Indeed, Cape May and Cumberland counties have the lowest property taxes in the state. In 2017, the average property-tax bill was $4,213. In Cape May County, it was $5,203.
Four counties in New Jersey — Essex, Bergen, Union and Morris — have average property taxes above $10,000. The average state and local tax deduction for a New Jersey resident overall is $17,850, according to the IRS.
On May 23, the IRS warned New Jersey “that federal law controls the characterization of the payments for federal income-tax purposes regardless of the characterization of the payments under state law.”
Simply put, the federal government is probably going to overrule the state law, Ashcraft said.
But the fight may not be over if the IRS overrules New Jersey.
“The state could bring this to court and fight it,” Ashcraft said, adding a court case would probably not be solved by next year. “If New Jersey wins in court, the taxpayer could then file an amendment to get the money back as a charitable writeoff.”
Van Drew said any decision about fighting the federal government in court would have to come from Murphy and the state Attorney General’s Office.
Egg Harbor Township Mayor James “Sonny” McCullough said he doubts municipalities will have to conform to the law.
“It’s a loophole, and the federal government is going to want their money,” he said. “It would be interesting if this did become law, though. … We’re way overtaxed in New Jersey, so anything will help.”