A bill was introduced in the New Jersey Legislature (SB 1893) (Bill) that, if enacted, would allow New Jersey municipalities, school districts and counties (each, a "local unit") to establish charitable funds, and would allow a credit of up to 90% of any donation made to such a fund against the contributor's local unit property tax obligations.

Under the bill, a local unit would be required to enact an ordinance or resolution establishing a charitable fund with a specified public purpose that is narrower than the range of general purposes for which a local unit can raise money. The local unit also would have to establish an annual cap on the amount of donations that could qualify for the property tax credit, although there would be no cap on the amount of donations in general to such fund. The amount of the property tax credit cannot exceed 90% of the annual cap, or a different percentage if determined by the Director of the New Jersey Division of Local Government Services. Property tax owners would be able to choose to apply their donations to specific properties in order to receive credits related to those properties, and they would be able to carry forward donations that exceed the cap for up to the next five succeeding years. Local units would be allowed to apply the donations to tax collection fees and administrative costs before applying them to charitable fund purposes.

Implications

The overall state and local fiscal impact of the Bill is unknown because the Bill is permissive in nature. It would only have a fiscal impact on local units that chose to create charitable funds. Since taxpayers could only use 90% of the charitable donations they make within the annual cap to offset their local unit property tax obligations, it is likely that many local units will see a small increase in overall property tax revenues, after credits and costs of collection and administration are subtracted. The Bill is clearly an attempt to work around the federal $10,000 annual cap on individual state and local tax deductions recently enacted by the Tax Cuts and Jobs Act (P.L. 115-97). Officials in both the US Department of Treasury and the IRS have publicly stated their intent to challenge any such state proposal so it is uncertain whether, even if enacted, a taxpayer's claim for a charitable deduction for any amounts "contributed" to such a local unit sponsored fund would, in fact, be deductible for federal income tax purposes.

It is expected that the Bill will move quickly through the legislative process. If approved by the Senate and Assembly it will become law if it is either signed by the Governor, or after 45 days if the Governor does not take any action on the Bill.

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