Tax law creates confusion and uproar in city halls across America
Mass confusion is erupting in town halls across the country thanks to the new tax law, as tens of thousands of property owners scramble to pay next year’s taxes ahead of schedule — while the governors of their states and the IRS give conflicting signals about whether that’s even allowed.
In the Albany suburb of Bethlehem, New York, more than 100 people waited in a gym to pay their property tax bills Thursday — some of them for over an hour — before a new federal $10,000 cap on state and local deductions goes into effect Jan. 1. Municipalities on Long Island were preparing to open over the weekend to give taxpayers more time to pay. But the IRS issued an edict Wednesday night saying the early payments could be deducted on 2017 taxes only if they had already been assessed. That threw residents and local government officials into a new round of confusion as everyone scrambled to determine which payments would qualify.
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The uncertainty this week could be the first of many misunderstandings to come as new tax rules take effect starting New Year’s Day. The tax law that President Donald Trump signed Dec. 22, which Congress rushed to pass before the end of the year, is explicit in some of its language but vague in other areas. It explicitly forbade prepayments of state and local income taxes but was silent on prepayments for state and local property taxes.
“What the federal government did and the timing of their actions was, in our view, cruel and unusual,” said Steve Acquario, executive director of the New York State Association of Counties. “They passed this tax bill at a time of year when government is very much in transition to the next fiscal year. There was great confusion this week.”
Jack Peterson, a lobbyist at the National Association of Counties, said he’s fielded questions from county officials nationwide this week about what the full gamut of federal tax changes could mean for them, with the preponderance of prepayment inquiries coming from officials in New York, New Jersey, Pennsylvania and Maryland.
“Any changes certainly take time and effort to properly implement and fairly implement,” he said.
The state and local tax deduction chaos erupted just days after the bill was signed into law. The new rules allow taxpayers to deduct their property taxes and either their state and local income or sales taxes up to $10,000 beginning Jan. 1, a change from the past in which all those state and local taxes were deductible without limit. So both New Jersey Gov. Chris Christie and New York Gov. Andrew Cuomo — whose states have high property taxes that well exceed that limit for many residents — issued orders encouraging people to prepay and deduct their 2018 taxes this year. Those orders just added to the confusion.
Lydia Leszczynski, tax collector for the Essex County town of Montclair, which has high property taxes, said residents prepaying them had only been thrown into more uncertainty by the IRS advisory as well as some language in Christie’s executive order regarding when payments have to be postmarked.
“If you want to make a prepayment, we’ll accept a prepayment. How it works out for them when they file taxes, I don’t have advice on that,” Leszczynski said. “They have a lot of questions. It’s not just do you accept 2018 — do you accept the whole year. It’s that ‘what does it mean, can we do this?’ We’re not tax professionals.”
In addition to postmark uncertainty, there remained other payment date doubts based on when checks were signed or received, or when the funds cleared. There is also ambiguity over what constitutes an assessment: an actual bill from a tax office or its notice of a property assessment for the year ahead?
“It’s a scramble,” said Cuomo, a Democrat, during an interview on MSNBC on Thursday. “This is what happens when Washington passes a bill in the dark of night and doesn’t vet it with the public.”
New Jersey Senate President Stephen Sweeney said the new federal tax law will force New Jersey, a high-tax state, to re-examine school funding and other services.
The latest advisory from the IRS, he said, only aggravates things further. Sweeney had called on Christie to let residents prepay their 2018 taxes before Jan. 1, and Christie on Wednesday signed an executive order to make sure local governments allow it.
“And they’re raining on our parade in Washington as we’re trying to ease the pain for a year,” Sweeney said.