The State Tax Credit Can't Be for Donations to the State Itself

Reader comment on: State Taxes and Charitable Gift Deductions

Submitted by Eric Rasmusen (United States), Jan 11, 2018 22:29

I think donations to autonomous non-state organizations would be the way to go. What most analyses miss is that the biggest problem is that the recipient can't give something of value to the donor, and the examples usually cited (tax credits for donations to school scholarship funds, or even tax credits for donations to school districts) don't do that--- it is a third party, the state, giving something to the donor for making the donation to the recipient. See
Getting Around the State and Local Tax Deduction Limit (January 9, 2018). Available at SSRN: https://ssrn.com/abstract=3099296. Also, http://rasmusen.dreamhosters.com/b/2018/01/additions-for-my-state-tax-paper-reciprocity-sullivan-and-pease/

I still would worry about form over substance. That would probably not be a problem if the credit is not for 100% or the funds do not replace state appropriations one for one.

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