The Legality and Ethicality of Taking State and Local Taxes as a Charitable Contribution

Luke Holcomb


The Tax Cut and Jobs Act (TCJA) of 2017 fundamentally altered the tax system for corporations and individuals. One of the main objectives of the TCJA with respect to individuals is to increase simplicity by encouraging more taxpayers to take the standard deduction instead of itemizing their deductions. This was set to be largely achieved by doing two main things. First, the TCJA nearly doubled the standard deduction. The second way was to eliminate or limit the deductions that taxpayers that normally itemize can deduct on their tax return. Prior to the changes, the state and local tax (SALT) deduction had no limit and was one of the most commonly claimed deductions for those filers who itemized their deductions. However, the TCJA limits the SALT deduction to $10,000 for both single and married filers. As a workaround many high-tax states passed measures that would allow individual taxpayers to make a “charitable contribution” to state charitable funds in lieu of paying state income taxes.

The ethicality and legality of this possibility has been called into question and will be examined throughout the course of this paper. It is concluded that the common workaround of giving a credit in return for a contribution to a state charitable fund should be effective in avoiding the SALT deduction limitation due to the case law backing this method. The impacts of considering SALT as a charitable contribution would cost the federal government a significant amount of revenue and benefit mostly the wealthy. The most effective solution to the whole matter is for Congress to address these concerns, but for now this method that the states have created to allow individual taxpayers to circumvent the SALT limitation should stand.