A plan to bypass the changes to federal taxes pushed through by President Donald Trump and the Republican majorities in Congress has not been embraced by local governments or school districts in Westchester, all of which are taking a wait-and-see attitude and delaying any changes to budgeting until 2019, at the earliest.
New Yorkers, and especially Westchester county residents who pay the highest property taxes in the nation, were among the communities across the country hit hardest by the change to the federal deduction for state and local taxes (SALT), now capped at $10,000 per year. Most Westchester homeowners pay $10,000 per year in property taxes, meaning that any dollar amount above that, and any of their state income taxes, can no longer be deducted on their federal taxes.
Gov. Andrew Cuomo and some state legislators have proposed a way around the SALT deduction, which would have homeowners pay their property taxes through a charitable contribution. But according to local Westchester officials, no town, village or school district is willing to accept charitable contributions as payment for a homeowner’s property taxes.
Greenburgh Town Supervisor Paul Feiner recently commented: “None of the school districts in Greenburgh will accept charitable donations in lieu of taxes, and most communities in Westchester follow a similar policy.
“Earlier this year, the New York State Legislature authorized local governments and school districts to accept charitable donations in lieu of tax payments so residents would be able to get a tax deduction. The town will be collecting school taxes for the school districts (which are independent of the town) in September. The new state law requires school districts that choose to opt into the law to pass a resolution in order for the town to accept charitable donations.
“I sent a few letters to each of the school districts within the town,” continued Feiner. “None of the school districts in Greenburgh will be accepting the donations for the September tax payments. Last week, the federal government took action steps to make it harder for residents to get the deductions. I also contacted fellow town supervisors in Westchester. School districts throughout the county have also decided not to implement the charitable tax deduction option. Only two communities, to the best of my knowledge, have signed on so far: Scarsdale and Rye Brook.”
There are four school districts in Greenburgh; Irvington, Edgemont, Hastings and Greenburgh. Feiner outlined the responses from each:
Greenburgh consulted with counsel (Judd Siebert from Keane & Beane) and shared background information, and the superintendent’s advice with the board. Board members requested they discuss this issue at its Sept. 4 work session meeting. It is likely that the district will wait until next year to decide whether it will implement anything new.
Hastings – School Board President Doug Sundheim said the Hastings-On-Hudson Union Free School District emailed its families regarding the district’s position on accepting charitable donations instead of tax payments, which is that the district would not accept charitable contributions this school year.
Irvington – The district consulted with counsel and per his advice and after a discussion at its Aug. 21, School Board meeting, the board decided to wait for the Internal Revenue Service to provide final guidance before taking any action.
Edgemont – The School Board voted to continue to evaluate the potential for a charitable contribution in lieu of taxes option. It said it is aware of the potential importance of SALT deduction work-arounds, but does not yet have sufficient information to decide whether it can make that option available, and wants to work with the town to figure out the following:
- Potential legal exposure: The opportunity to implement a new program arises in an unsettled area of law that pits state/local authorities against federal authorities. The board said it needs to determine whether proceeding with a program exposes the town or school district to potential liability, now or in the future.
- Mechanics: What is the process by which a charitable contribution program would be created and implemented? What does the school need to do? It is complicated to create a new program from scratch – and it is essential to do it correctly.
- Burden and cost to the district: The board said whether and how any charitable contribution program unduly burdens Edgemont administrators and/or imposes costs on the school district will affect its appeal.
- Best practices: To the extent other communities have implemented programs, what are the things the board can learn/copy?
A recent story from The Associated Press points to efforts being made by the Trump administration and the Treasury Department-IRS to deny communities like those in Westchester from bypassing the new SALT restrictions.
“The Trump administration has laid down rules aimed at preventing residents in high-tax states from avoiding a new cap on widely popular state and local tax deductions,” reads the story. “The action under the new Republican tax law pits the government against high-tax, heavily Democratic states in an election-year showdown.
“The Treasury Department’s rules released Thursday target moves by states like New York, New Jersey and California – where residents could see substantial increases in their federal tax bills next spring because of the $10,000 cap on state and local deductions. The cap was put in as a compromise to eliminating the deductions completely, as part of the massive GOP tax package pushed by President Donald Trump and enacted late last year. Experts say the issue likely will have to be resolved by the federal courts.
“The limit means taxpayers only can deduct as a charitable contribution the portion of their donation for which they don’t also get a state tax credit.
“Four high-tax states – Connecticut, Maryland, New Jersey and New York – already have sued the federal government over the deduction cap, asserting it’s aimed at hurting a group of Democratic states and tramples on their constitutional budget-making authority.
“A dozen high-tax states have taken or are considering measures to get around the cap. Most of the workarounds take advantage of federal deductions for charitable contributions – which aren’t capped – in place of the old deductions for paying state and local income taxes. So, people’s state and local taxes exceeding $10,000, which can’t be deducted, are turned into deductible charitable donations.
“How do the limits work under the new rules?
“Dollar-for-dollar: When a taxpayer receives a benefit in return for donating to charity, the taxpayer should only be able to deduct the net value of the donation as a charitable contribution, Treasury says.
“An example: You donate $1,000 to a charity in a state that offers a 70 percent tax credit, so $700 in this case. You would only be able to claim a $300 charitable deduction on your federal return.
“What’s happening in the high-tax states?
“New York Gov. Andrew Cuomo, a Democrat, on Thursday called the new rules ‘politically motivated’ and threatened to sue the federal government over them. New Jersey’s Gov. Phil Murphy said the state also is weighing its options for legal action, while California State Sen. Kevin de Leon said he expects the state to sue. Murphy and de Leon also are Democrats.
“In some key ‘blue’ states:
“Connecticut has a new law establishing a state charitable fund; donors can get tax credits in exchange for giving.
“In New Jersey, where high local property taxes are the major issue, the state is allowing local schools and governments to use the charitable workaround. But so far, no towns have notified authorities that they’ve set up funds to receive contributions – because state regulators haven’t issued the necessary rules, experts say.
“New York is offering three options: One like Connecticut’s, one like New Jersey’s, and another to let employers pay payroll taxes for employees, who would receive credits to cancel out the income taxes they would have paid otherwise.” (End of AP story.)
We will look into the efforts by Scarsdale and Rye Brook to set up these charitable accounts for payment of property taxes and report back.
