22 May How the Millionaire’s Tax Hit Needy Nonprofits: Residents Leaving New Jersey
by Eric Furey, CFP, CFA, RegentAtlantic Capital
The year 2004 marked the beginning of a rough financial period for New Jersey-based nonprofit organizations. That’s the year the Garden State enacted the so-called “Millionaire’s Tax”—jettisoning residents earning more than $500,000 per year into the state’s top tax bracket. That tax change hit nonprofits quite hard.
As you can imagine, nonprofits traditionally rely on high-net-worth individuals for many of their donations and grants. When the Millionaire’s Tax went into effect, donations to New Jersey-based charities began to decline. In our white paper, “Exodus on the Parkway: Are Taxes Driving Wealthy Residents out of New Jersey,” we try to explain what happened.
In a nutshell, our research shows that high-income residents began moving out of New Jersey after 2004 into tax-friendlier states. And when individuals move, it’s not uncommon for them to begin donating to charities in their new locale. Until the last couple of years, in fact, charitable donations were one of the criteria taxing authorities used to determine an individual’s official residency in another state.
If you were a wealthy individual claiming to be a newly minted resident of Florida, you may have been advised by legal and financial professionals to stop donating to New Jersey charities and make a point to donate to nonprofits in your new home state of Florida. In case of a residency audit, the more financial ties you could show to your new state, the better.
In 2013, Gov. Chris Christie signed a new law that prohibits New Jersey from considering charitable contributions when determining an individual’s state residency. That’s a positive step, but it’s likely not enough.
The Trickle-Out Effect
There’s evidence that the Millionaire’s Tax had a significant impact on contributions to local, New Jersey-based charities. From 1999-2003, New Jersey showed a positive net aggregate when it came to donations: $1.5 billion in charitable contributions left the state (to go to national or out-of-state nonprofits) but $2.4 billion was tallied in incoming contributions to our state’s charities (Source: Community Foundation of NJ). The net impact: A positive $900 million of stay-in-New-Jersey donations.
Those numbers shifted significantly after 2004 and the introduction of the Millionaire’s Tax. Only $961 million flowed into state nonprofits’ accounts, while much more–$2.09 billion–of residents’ donations went to national or out-of-state charities (Source: Community Foundation of NJ). While there could have been other factors, the tax change seems like an obvious culprit.
Austerity Breeds Creativity
Nonprofits have struggled mightily over this donation reduction. Most of them still have staff to pay, lights to keep on, and clients to serve. Along with reducing their already tight budgets, they may have gotten much more assertive about asking for grants and donations. They no longer assume their loyal, long-time donors will maintain their deep pockets. As a result, some local nonprofits may want to take lessons from behavioral economists about creative ways to ask for support.
In the future, one compromise could be for the state to allow residents a tax deduction just for charitable contributions made to New Jersey nonprofits. If residents donate to organizations based elsewhere, they’re out of luck, deduction-wise.
Give Locally
For today, we strongly encourage you to keep your local, New Jersey nonprofits in mind when you spend your philanthropic dollars. Local charities need your help more than ever, given the loss of many of their high-net-worth donors over the past decade. Even though you don’t earn a New Jersey tax break for your donations, your money goes a long way toward making your community a more livable place—providing everything from food for needy families to stewardship of your nearby parks. Those are returns on investment (ROIs) you can appreciate each and every day.
For more on the impact of the Millionaire’s Tax, residents leaving New Jersey, and the impact on nonprofit organizations, check out our read our full-text white paper: “Exodus on the Parkway: Are Taxes Driving Wealthy Residents out of New Jersey.”
Eric Furey, CFP, CFA, is a Wealth Advisor with RegentAtlantic Capital in Morristown. He may be reached at or (973) 425-8420 x252.
This story was first posted in June 2015.
This is a sponsored section. The advisors have paid a fee to post their commentary here. Their sponsorship doesn’t influence any editorial decisions we make at NJMoneyHelp.com, or give them more or less exposure in our stories. Their posting does not constitute an endorsement by NJMoneyHelp.com.
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RegentAtlantic does not provide tax or legal advice. Please consult with a tax or legal advisor prior to changing your legal residence for tax purposes. This article is based on RegentAtlantic’s current understanding of tax law and this law can be changed at any time.