Governor vetoes state tax-deduction workaround

Gov. Jerry Brown vetoed a bill that would let high-income California taxpayers circumvent the $10,000 limit on the federal income tax deduction for state and local taxes.

SB539, by Sen. Kevin de León, D-Los Angeles, was intended to expand a state program that gives people who donate to a program that distributes Cal Grants to college students a state tax credit equivalent to half of their donation. The new law would have increased the credit to 75 percent and doubled the amount of credits that can be given, to $1 billion.

In a brief statement explaining why he did not sign the bill, Brown said the measure “started out as a bold idea but because of adverse changes in the federal tax law, it now confuses an already complicated scheme and could invite intervention by the Internal Revenue Service.”

Connecticut, New York and New Jersey have already created similar programs, known as SALT workarounds. The programs give people who made donations to certain state-run funds or private charities a dollar-for-dollar state tax credit equivalent to a percentage of their contribution. One hundred percent of their donation can then be deducted as a charitable contribution on their federal return, if they itemize it.

State and local tax deductions were unlimited before President Trump signed a major tax overhaul bill last year.

The IRS is considering a crackdown on states’ SALT workarounds.