To get around Trump tax law, RI lawmakers eye charitable donations to state treasury

PROVIDENCE, R.I. (WPRI) – A pair of lawmakers want to add a new organization to the list of charities you can donate to this year: the state of Rhode Island.

Sen. Ryan Pearson, D-Cumberland, and Rep. Kenneth Marshall, D-Bristol, have filed a bill to create a new Rhode Island Ocean State Fund within the state’s general fund. The bill “would allow taxpayers to make contributions in lieu of taxes to the Ocean State Fund,” then receive a tax credit for the same amount, Pearson said.

No, the two lawmakers don’t think Rhode Islanders suddenly want to include the state in their wills – it’s a response to the new federal tax law signed by President Trump last December.

The new law caps the federal deduction for state and local taxes (SALT) at $10,000. Experts say the new limit could raise taxes on some affluent Americans, particularly in higher-tax blue states like Rhode Island, Massachusetts and New York.

The change in Washington has led leaders in those generally Democratic-dominated states to seek creative ways around the cap, and one of them is the solution Pearson and Marshall have hit upon: letting taxpayers effectively turn their tax payments above $10,000 into charitable contributions, which can still be deducted in full under the law.

“The tax plan in Washington has placed an unfair burden on our state,” Pearson said. “With a uniform cap of $10,000, it does not take into account the differences in the cost of living across the country, and it unfairly punishes many states like Rhode Island.”

Marshall explained, “Since the IRS allows charitable contributions to state agencies only when the contribution ‘is solely for public purposes,’ this legislation would require all amounts in this fund to be used for those public purposes upon appropriation by the General Assembly.” The general treasurer would manage the donation process.

Pearson and Marshall both serve on their respective chambers’ Finance Committees. Their co-sponsors include Senate Finance Committee Chairman William Conley and House Majority Whip Jay Edwards, the third-ranking House Democrat. No Republicans have signed onto the bill, which has not yet received a hearing.

The Tax Foundation, which supports the tax law, has called the charitable contribution idea “dubious,” arguing IRS regulations and case law would prohibit it. “Whatever their political advantages, the IRS will see right through contributions in lieu of taxes schemes and treat the payments as what they really are: tax payments by another name,” Jared Walczak, a senior policy analyst at the group, wrote last month.

Democratic Gov. Gina Raimondo has cited the SALT cap as a reason for her opposition to the new tax law, and Massachusetts Gov. Charlie Baker, a Republican, has also criticized the provision. In an interview on WPRI 12’s Newsmakers last month, Raimondo said she thinks “Northeastern states are over time going to be hurt by this. You know, it clearly favors Republican-controlled states with low property taxes and low state income taxes.”

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He is a weekly panelist on Newsmakers and hosts Executive Suite. Follow him on Twitter and Facebook