Continuing a fight against the new federal tax law, New Jersey Attorney General Gurbir S. Grewal sent a letter Thursday to the IRS opposing a proposed rule that would block a workaround to the new cap on state and local tax deductions.
The rule, issued in August, would change the guidelines for deducting charitable contributions from federal tax returns. It would close a loophole under which New Jersey could allow local governments to accept tax payments as charitable contributions that could be deducted from federal tax returns. New Jersey lawmakers passed a law allowing such contributions instead of traditional tax payments this year, in response to the new federal law capping state and local tax deductions at $10,000.
The changes would be "misguided as a matter of policy," Grewal wrote in a letter to the IRS co-signed by the attorneys general of California, Connecticut, and New York. "The IRS should not play politics; it should instead confirm its longstanding interpretation of federal law."
The new $10,000 cap on state and local tax (SALT) deductions has been criticized by officials in New Jersey, which has the highest property taxes in the nation with an average bill of $8,000.
Grewal and the other attorneys general sent their letter as part of the IRS comment period on the new charitable-giving guidelines. But it's not the only action officials in some states have taken to push back; New Jersey joined three other states in filing a lawsuit against the IRS in July, and Gov. Murphy has said that the IRS is targeting Democratic-controlled states.
The IRS proposal for charitable contributions would require taxpayers to subtract the value of any SALT credits from their charitable contribution deductions. Grewal said that the changes could discourage charitable giving and that the agency has overstepped its authority because Congress did not change charitable-giving deductions when it passed the new tax law.
Programs that offer SALT credits to taxpayers who make charitable donations exist in 33 states, Grewal's letter said, and are used to encourage residents to support a variety of causes.
Murphy said in August that state officials have created a "tool kit" for local governments and school districts that want to allow charitable contributions instead of tax payments but that the state has held off on moving forward while it awaited the new IRS rule.