STUMP » Articles » Taxing Tuesday: A Local Discussion on the SALT Cap, and Other State Options » 7 August 2018, 14:43

Where Stu & MP spout off about everything.

Taxing Tuesday: A Local Discussion on the SALT Cap, and Other State Options  

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7 August 2018, 14:43

Some background — I live in North Salem, NY — you know, where Dr. Xavier’s Academy “lives”.

Warren Lucas is the Town Supervisor – you could say “mayor”, but he just gets stuff done. He’s a retired engineer (IBM-type, not train-type), and sometimes he goes waaaaay into detail.

So this is what he had to say about the SALT cap crap: (ok, only a bit – I’m not excerpting the whole thing)

THE SALT SOLUTION: State and Local Taxes

In an attempt to circumvent this legislation the 2018-2019 New York State budget vote also set forth changes in how you calculate personal Income taxes and real property taxes. The thought was that you would claim your local real estate taxes as a charitable donation and that since charitable donations are allowed as deductions you would be able to use it on your Federal taxes. In defining the new legislation (State Finance Law 92-gg), they also suggested changes in the way the taxes would be collected.

It is unclear whether or not the IRS will allow these ‘charitable deductions’. Many people are betting they will not. Although the IRS has stated they don’t understand how these would be considered charitable, they have not yet stated a position.

To enable this locally school districts and Towns need to pass resolutions creating a Charitable Gift Reserve Fund (Town) and a Charitable Fund (Schools). Your tax, as a ‘donation’ would then be paid to the school or Town, whomever is designated to collect the charitable funds. The ‘donator’ will then get a voucher for 95% of the money they donated to the school or Town charitable fund which can then be used to pay all or part of your local taxes. The 5% being kept by the School or Town to run the program.

The sticking point to many is that the school and Town also have to sign documents stating that “No goods or services were provided in exchange for this donation”. Many school and municipal officials don’t understand how that would be the case and some are reluctant to sign a document stating that.

I will NOT be doing this.

The North Salem School District and the Katonah Lewisboro School District have both notified the towns they serve that they are not going to be setting up the Charitable Trust and accepting payments until the IRS makes a determination on the viability of the funds.

Oh, good. But I still will NOT be doing this, because it’s dishonest bullshit.

But wait – here’s something:

If we set it up it is still up to you, the taxpayer, to take advantage of the Charitable Reserve Fund. In Rye where the Village tax was just collected they had 6 taxpayers out of 10,000 used the charitable fund.

Yup.

Then Warren linked to this piece from the Tax Foundation: New York’s SALT Avoidance Scheme Could Actually Raise Your Taxes

Warren put in some further information in the comments — I’m going to clean it up so that it’s easier to read.

Warren Lucas Steve, I go to Albany every year and ask four Legislature to work on several things as my position of the Legislative Chair of the Westchester Municipal Officials Association called WMOA. What are two simple components that we discuss every year.

In your April payments you pay millions in County tax. Two components of the tax add up to almost 40%
1) There are two states in the united States that push Medicaid taxes down on local real estate taxes. NY is one. Westchester’s bill is over $200M for this. Westchester entire real estate tax is just over $600M, so a big chunk. We have asked them repeatedly to please get it paid through another means

2) Back in about 1999 when the economy was booming and no one looking the State Legislature decided to push a system maintenance fee for the MTA platforms on local real estate taxes. Westchester collects about $27M. from its businesses and residences for the MTA. North Salem pays about $240K of that each year.

For the $27M the MTA cleans the platforms and sweeps snow off of them. The real problem is that it doesn’t even have to go back to Albany to get increased. The MTA sits down every year and decides what the increase is. North Salem… i.e. you do…. pays over $2M/year for these two items. If the Governor wants to make Westchester less expensive pleasure put these taxes where they belong and not on the local residential taxpayer.

I did not know that about Medicaid in NY. Now, I know something substantive.

CONNECTICUT HAS OPTIONS

So, I’ve had “fun” saying how screwed CT is. I pay a lot of taxes to them.

The Tax Foundation has some ideas — Enhancing Tax Competitiveness in Connecticut:

Key Findings

Connecticut is struggling. The state is affluent, but a shrinking population and departing employers, coupled with mounting costs of government and the high taxes that pay for it, have the state headed in the wrong direction.

The state’s high and economically inefficient taxes are only one of several reasons for the outmigration of people and jobs, but taxes are an important consideration and one within policymakers’ power to address.

In addition to its high rate, Connecticut’s volatile corporate income tax suffers from its inclusion of an alternative capital stock base and limitations on the utilization of net operating losses. The state’s recent shift to unitary combined reporting can also raise both tax and compliance costs for some businesses.

The individual income tax has grown far beyond the expectations set when it was first implemented in 1991, and its structure, in tandem with the unique economic characteristics of Connecticut’s population, result in substantial revenue instability.

Like most states, Connecticut exempts broad swaths of personal consumption from the sales tax. Broadening the tax base could pay down substantial reforms to other taxes, as could the use of newfound authority to tax remote sales.

The absence of a de minimis threshold for business tangible property tax liability imposes substantial compliance costs on many businesses while yielding a negligible amount of additional revenue for local governments.

Keeping faith with an electorate which adopted a spending cap alongside the authorization of an individual income tax requires properly implementing and abiding by the cap.

With businesses and individuals heading for the exits, policymakers cannot afford complacency.

And here’s a graph:

OTHER STATES TAKE ADVANTAGE OF TCJA

Five States Accomplish Meaningful Tax Reform in the Wake of the Tax Cuts and Jobs Act:

Georgia: Anticipating a revenue increase of $5.2 billion over five years, the legislature passed House Bill 918, tax reform legislation that was signed into law by Governor Nathan Deal ® in March. This law reduces the top individual and corporate income tax rates from 6 percent to 5.75 percent in 2019 and doubles the standard deduction. In addition, this law outlines steps to further reduce both rates to 5.5 percent pending passage of a joint resolution ratifying such language in 2020. You can read more about Georgia’s tax reform law here.

Idaho: Anticipating a $97.4 million increase in revenue in fiscal year (FY) 2019 due in large part to the state’s conformity with the federal personal exemption (which was eliminated in the TCJA), Idaho lawmakers realized that doing nothing would result in an unintended tax increase. As a result, the House and Senate passed House Bill 463, which was signed into law by Governor Butch Otter ® in March. This law retains conformity with the TCJA’s repeal of the personal and dependent exemptions, incorporates the TCJA’s higher standard deduction, reduces the individual income tax rate by 0.475 percentage points across all marginal income tax brackets, and reduces the corporate income tax rate by 0.475 percent. Read more about Idaho’s tax reform law here.

Iowa: The Iowa Department of Revenue projected $188.3 million in increased revenue due to the TCJA. After initially weighing the idea of reducing rates without enacting substantive reforms, Iowa lawmakers ultimately opted for comprehensive tax reform, fully restructuring the state’s tax code to better promote economic growth. In May, Governor Kim Reynolds ® signed Senate File 2417 into law, bringing much-needed reform to a tax code that was previously one of the worse structured in the country. This tax reform package consolidates Iowa’s nine individual income tax brackets into four and lowers the top rate from 8.98 to 6.5 percent. It also eliminates the alternative minimum tax (AMT) and fully conforms with federal itemized and standard deductions, among other changes. This law incorporates many of the reforms we recommended for the state in 2016, including an eventual repeal of the state’s unusual deduction for federal taxes paid and a reduction of the highest-in-the-nation corporate income tax rate from 12 percent to 9.8 percent by 2021. Click here to read a detailed overview of the new law.

Missouri: Governor Mike Parson ® signed House Bill 2540 into law in July. This tax reform law reduces the top individual income tax rate from 5.9 to 5.4 percent in 2019 and includes triggers to reduce the rate to 5.1 percent subject to revenue availability. The law also partially phases out high earners’ federal deductibility, which has historically allowed Missouri taxpayers to deduct a portion of their federal tax liability from their income when calculating state liability. Combined with legislation enacted earlier this year giving the state a 4 percent corporate tax rate, this conformity and tax reform package will help Missouri stand out among its peers. Read more here.

Utah: Utah adopted House Bill 293 in March, which reduced individual and corporate income tax rates slightly, from 5 percent to 4.95 percent, as well as increased the state’s homeowner’s and renter’s tax credits. In a July special session, the state approved a $30 million expansion of the state’s child tax credit, which is expected to reduce families’ income tax liabilities by approximately $34 per dependent.

That’s all from the Tax Foundation.

I don’t feel like dealing with tweets today, so this will have to do.

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