About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

LOG IN
LOG IN


1 Jared Walczak, State Strategies to Preserve SALT Deductions for High-Income Taxpayers: Will They Work 1 (2018)

handle is hein.taxfoundation/stpvsald0001 and id is 1 raw text is: State Strategies to Preserve SALT Deductions for High-Income Taxpayers: Will They Work? Jared Walczak Senior Policy Analyst FISCAL FACT No. 569 Jan. 2018 Key Findings The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) non profit organization. ©2018 Tax Foundation Distributed under Creative Commons CC BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, D.C. 20005 Several states are exploring strategies to preserve the full state and local tax deduction for high-income residents, which is capped at $10,000 under the new tax law. In California, legislation has been filed to allow residents to make contributions in lieu of taxes, making a voluntary contribution to a new California Excellence Fund and then claiming the full amount as a credit against state income tax liability, since the state and local tax deduction is capped but the charitable deduction is not. In New York, Governor Andrew Cuomo is considering creating a new employer-side payroll tax with a commensurate credit against state income tax liability, since employer-side payroll taxes are deductible. Case law and IRS regulations generally require charitable intent for a contribution to be deductible, meaning that the individual does not receive a substantial benefit from the contribution. Against this requirement, the sole purpose of the proposed contributions in lieu of taxes proposal is financial gain. While the availability of state tax credits does not disallow taking the federal charitable deduction for genuine charitable contributions, any such contribution to a governmental entity must be solely for public purposes. It is quite possible that the IRS would consider a new employer-side payroll tax with a fully compensatory tax credit to constitute payment of an employee's income taxes by the employer, which would not only negate the benefit of the plan but could actually increase taxpayer liability. Although proponents have contemplated the possibility of graduated-rate payroll taxes to replace graduated-rate income taxes, they have yet to address how such a system would handle individuals with multiple income streams. 202.464.6200 taxfoundation.org