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State Budget-New York

New York Gov. Andrew Cuomo delivers his 2018 executive state budget proposal during a news conference at the Clark Auditorium in Albany, N.Y., Tuesday, Jan. 16, 2018. (AP Photo/Hans Pennink)

Hans Pennink

An upstate New York congressman is asking the U.S. Treasury Department to review a state-level proposal unveiled by Gov. Andrew Cuomo that is in response to the federal tax law adopted in December. 

U.S. Rep. John Faso sent a letter to the Treasury Department's Office of Tax Policy urging the agency to examine Cuomo's proposal to create charitable funds for state education and health care programs. The state would encourage contributions to the funds by establishing a tax credit for donors. 

Local governments would be permitted to establish similar funds to collect contributions for education and health care services. 

Cuomo's proposal is in response to changes made in the federal tax law to state and local tax deductability for those who itemize their deductions. Taxpayers may deduct up to $10,000 of state and local income, property and sales taxes. Before the new tax law was adopted, there was no limit on the amount of state and local taxes an individual could deduct. 

New York and other high-tax states, such as California, have explored ways to circumvent the new federal tax law. Setting up charitable funds is one proposed solution. 

In his letter, Faso, R-Kinderhook, explained to David Kautter, the Treasury Department's assistant secretary for tax policy, that he has received questions from constituents who live in his Hudson Valley district asking whether Cuomo's proposal would comply with federal law. 

"Would such payments or contributions meet the test for a charitable deduction since presumably the taxpayer is receiving benefits from the governmental units and school districts for the 'contributions' donated?" he asked.

Faso acknowledged there is "great public interest" in this issue beyond New York. Along with California, Connecticut, New Jersey and other states are considering similar proposals. 

With this becoming a potential alternative for states to get around the limits on state and local tax deductability, Faso asked whether the Internal Revenue Service is studying the proposals. 

"I believe that it is important that the Treasury and the IRS issue guidance or a formal opinion letter whether taxpayer contributions to state authorized trust funds, partially reimbursed by credits reducing state and local income taxes, will be considered deductible for federal tax purposes," he said. 

Whether New York will establish the charitable contribution funds is unclear. While Cuomo is pushing for the creation of the funds, it faces an uphill climb in the state Legislature. Senate Republicans haven't warmed to restructuring the state's tax code. 

Senate Majority Leader John Flanagan, a Long Island Republican, has said that the tax proposals outlined by Cuomo wouldn't be considered in the budget process. 

Cuomo's other proposals include an optional payroll tax for employers and decoupling from the federal tax code.