State senate passes workaround of federal tax overhaul

New Jersey lawmakers advanced a measure Monday to cushion the effect of the federal tax overhaul's cap on state and local tax deductions.

The Democrat-led Senate voted 28-9 to pass the measure pushing back against the Trump administration's new law, sending the bill to the Democrat-controlled Assembly.

The new federal tax law that caps state and local tax deductions at $10,000 sent officials in high-tax states like New Jersey scrambling to blunt the potential impact on taxpayers. A similar measure has been approved by California's state senate and New York is weighing the proposal.

New Jersey has among the highest property tax rates in nation, with the average bill at nearly $8,700 in 2017. Over 40 percent of filers itemized deductions in 2015, with the average deduction at about $18,000, according to Democratic Gov. Phil Murphy's transition reports.

Murphy has said he would support a proposal like the one lawmakers advanced on Monday.

"For us to sit back and do nothing — there is no doubt about it we are a state with high property taxes and losing that SALT deduction is a killer," said Democratic state Sen. Paul Sarlo, who backed the bill.

Under the legislation, towns and school districts that collect property taxes would be permitted — but not required — to set up charitable funds.

Taxpayers would then pay property taxes to the funds and get a deductible tax credit in return.

Lawmakers say the measure would effectively restore the limitless deductions on state and local property taxes. The new law does not cap charitable deductions.

But skeptics say the IRS is unlikely to permit the change since the charitable contributions are aimed at paying property taxes. The aim is not to "give something and get nothing in return," as in traditional charity, according to Republican state Sen. Steve Oroho.

"The concern I have is that we're going to give our residents a false sense of security," Oroho said.

Republican state Sen. Joseph Pennacchio said Monday that the bill was "hypocritical" in light of the state's failure to recognize charitable contributions.

"The bill is nothing more than a scheme," he said.

Democratic state Sen. Nia Gill supported the measure but raised concerns that residents who pay property taxes through their mortgage companies might not be able to take advantage of the proposal because those companies might not want to engage in the practice.

The legislation doesn't require residents to pay property taxes through charitable funds. That made a difference for Gill.

"The fact that it is not mandated is the only reason I will vote for it to go forward," she said.

The legislation passed the same day New Jersey Attorney General Gurbir Grewal asked the IRS to agree that prepaid 2018 property taxes would qualify for deduction. New Jersey residents rushed to pay their property taxes early to take advantage of the full deduction before the new law went into effect.