57-18 Exhibit - Urging State of New Jersey to Implement Charitable Trust in Lieu of Local Taxes Plan.pdf

FEDERAL  TAX  TREATMENT  OF  STATE  CHARITABLE  TAX  CREDITS     had  standing  under  Flast,  the  respondents  in  Winn  alleged  that  Arizona’s  100%  tax  credits   were   “best   understood   as   a   governmental   expenditure”   and   that   by   making   donations   entitling  them  to  100%  state  income  tax  credits,  donors  to  STOs  were  “in  effect  …  paying   their  state  income  tax  to  STOs.”     In  his  opinion  for  the  majority,  Justice  Kennedy  rejected  both  of  these  arguments.  As   to  whether  state  tax  credits  should  be  understood  as  a  government  expenditure,  the  Court   noted  simply  “[t]hat  is  incorrect”  and  said  instead  that  tax  credits  are  an  instance  of  “the   government   declin[ing]   to   impose   a   tax…”   The   Court   did   not   characterize   the   granting   of   state   tax   credits   as   a   transfer   of   money   or   other   property   to   the   taxpayer   (the   essential   elements   of   a   quid   pro   quo   transfer).   Rather,   “[w]hen   Arizona   taxpayers   choose   to   contribute  to  STOs,  they  are  spending  their  own  money,  not  money  the  State  has  collected   from  respondents  or  from  other  taxpayers.”  The  Court  also  emphasized  that  donations  to   Arizona   STOs   were   fully   voluntary,   concluding   that   “respondents   and   other   Arizona   taxpayers   remain   free   to   pay   their   own   tax   bills,   without   contributing   to   an   STO”   or,   alternatively,  they  could  “contribute  to  an  STO  of  their  choice,  either  religious  or  secular”   [or]  “other  charitable  organizations,  in  which  case  respondents  may  become  eligible  for  a   tax  deduction  or  a  different  tax  credit.”  Significantly,  the  point  here  seems  to  be  that,  when   an   individual   makes   a   gift   to   an   STO,  

ion  or  a  different  tax  credit.”  Significantly,  the  point  here  seems  to  be  that,  when   an   individual   makes   a   gift   to   an   STO,   the   Supreme   Court   regards   that   act   as   a   wholly   voluntary   private   decision,   despite   the   fact   that   the   gift   generates   a   100%   tax   credit,   reducing  the  donor’s  tax  liability  on  a  dollar-­‐for-­‐dollar  basis.   The  second  element  of  the  Court’s  analysis  is  perhaps  even  more  relevant  to  the  Full   Deduction  Rule.  Recall  that  in  CCA  201105010,  when  the  IRS  embraced  the  Full  Deduction   Rule,   it   also   noted   that   “[t]here   may   be   unusual   circumstances   in   which   it   would   be   appropriate  to  recharacterize  a  payment  of  cash  or  property  that  was,  in  form,  a  charitable   contribution   as,   in   substance,   a   satisfaction   of   tax   liability.”   In   Winn,   the   Supreme   Court   appears   to   express   the   view   that   donations   generating   a   100%   state   tax   credit   are   not   one   of   those   circumstances:   “Like   contributions   that   lead   to   charitable   tax   deductions,   contributions  yielding  STO  tax  credits  are  not  owed  to  the  State  and,  in  fact,  pass  directly   from  taxpayers  to  private  organizations.  Respondents’  contrary  position  [that  a  tax  credit   donation  constitutes  a  satisfaction  of  a  tax  liability]  assumes  that  income  should  be  treated   as  if  it  were  government  property  even  if  it  has  not  come  into  the  tax  collector’s  hands.”44                                                                                                                           44 One   might   argue   that   the   court’s   characterization  

                                                      44 One   might   argue   that   the   court’s   characterization   of   STOs   as   “private   organizations”   is   an   essential   element   of   the   Court’s   analysis   here,   but   the   “private”   aspect   of   these   organizations   cannot   be   essential   to   the   holding.   First,   Congress   has   determined   that   both   public   and   private   organizations  are  entitled  to  receive  deductible  charitable  donations  (26  U.S.C.  170(c)).  There  is  no   favored   "private"   category.   Second,   treating   tax   credits   as   a   quid   pro   quo   only   in   the   case   of   donations   to   public   entities   (but   not   in   the   case   of   donations   to   private   organizations)   would   run   afoul  of  longstanding  precedent  that  the  “return  benefit”  in  quid  pro  quo  transfers  need  not  come   directly   from   the   donee   organization   but   can   also   consist   of   indirect   benefits   (see   e.g.,   Singer   16