Don’t count on state finding tax relief

California’s Democrat-dominated state government and the Republican-dominated federal government are engaged in so many conflicts that you need a scorecard to keep track.

In fact, CALmatters has assembled a compendium of the Sacramento-vs.-Washington battles that must be constantly updated as new so frequently arise.

They range from the purely symbolic to those that could, depending on the outcome, affect the lives of real people. One of the latter is over the federal tax overhaul that Congress enacted and President Donald Trump signed. One provision would limit income tax deductions for state and local taxes (SALT) to $10,000 per return.

The limit hits residents of high-taxing states such as California the hardest and elicited howls of protest from state’s politicians – and those in other blue states – that it was nothing more than a political karate chop.

Some 6.1 million California residents claimed SALT deductions in 2015, reducing their federal taxable incomes by $18,438 on average, according to the Tax Policy Center. Only New York and Connecticut had a higher average.

While the limit would not directly affect the revenues of high-tax states, it would make their tax levies more burdensome because they could no longer be fully written off. That might make blue state taxpayers, especially high-income residents, less willing to pay up and even encourage some to flee to states such as Nevada, Texas, Washington or Florida, which don’t levy income taxes.

As protests reverberated, some clever folks came up with schemes they hoped would counter the $10,000 limit, such as converting state taxes into charitable donations that could then be deducted without limit.

In California, two bills are still alive as the Legislature churns toward adjournment Friday.

Assemblywoman Autumn Burke, a Marina Del Rey Democrat, is carrying Assembly Bill 2217, which would allow taxpayers to contribute to nonprofits, colleges or K-12 public schools in exchange for an 80 percent tax credit.

Sen. Kevin de León, a Los Angeles Democrat and candidate for the U.S. Senate, would give taxpayers a 75 percent tax credit for contributing to the state’s college tuition fund in Senate Bill 227.

The Legislature may be tempted to thumb its nose at Washington by sending one or both to Gov. Jerry Brown. That would be a big mistake, which could subject Californians who took such “charitable deductions” to intense IRS scrutiny, interest and even fines.

Why? Because last week, the IRS and the Treasury Department specifically warned that such workarounds would be disallowed by promulgating new rules. If the rules are in place by the end of the year, they would block major tax write-offs by requiring taxpayers to lower the value of their charitable deduction by the amount of any state or local tax credit received.

As tempting as passing the pending bills may be, it’s unlikely that California and other states, such as New York, planning similar maneuvers would prevail in an inevitable legal showdown. The prudent step would be to allow some other state to fight the battle first without putting California taxpayers at risk.