Governor Philip D. Murphy Vetoes New Jersey Version of Civil Rights Tax Relief Act

February 21, 2019

By Francine Foner, Esq. and Ty Hyderally, Esq.

On January 31, 2019, Governor Murphy vetoed a bi-partisan bill which would have created an exclusion from the New Jersey Gross income tax for attorney’s fees and costs received by victims in connection with certain unlawful discrimination, unlawful retaliation, and qui tam claims or actions.

As the bill’s sponsors observed, the policy goals underlying the proposed exclusion from New Jersey income tax were consistent with those of the 2004 federal Civil Rights Tax Relief Act (“CRTA”), which Congress enacted as part of the American Jobs Creation Act of 2004. The aim of the CRTA was to eliminate the double taxation of attorney’s fees and costs at the federal level to both the attorney, who is ultimately paid the fees, and the victims of discrimination or retaliation. The CRTA achieves that goal by allowing the victim to take an above-the-line deduction for the recovery or payment of attorney’s fees and costs recovered in connection with any action or claim of unlawful discrimination or retaliation. See 26 U.S.C. 4 s.62(a)(20)-(21). However, New Jersey law was not amended when Congress passed the CRTA and thus attorney’s fees and costs awarded to New Jersey victims of discrimination and retaliation are taxed twice, once to the law firm that is ultimately paid the fees, and once to the victim, even though the victim never actually receives the fees and costs. This New Jersey bill sought to make New Jersey income tax law consistent with the CRTA.

Despite the fact that Governor Murphy noted in his official statement that he “endorse[s] the policy goals that this bill seeks to achieve,” he nonetheless declined to sign the measure into law.  According to his official statement, the Governor’s basis for vetoing the bill was that it would result in a loss of anticipated tax revenue to the State of approximately $245 million over the next four years, including a loss of approximately $56 million for the current Fiscal Year.  That loss, he noted, “could lead to reduced property tax relief or increased property taxes to account for the Property Tax Relief Fund revenue lost due to the gross income tax exclusions contemplated under the bill” and could also lead to a reduction in available state aid for public schools. While those state programs are certainly deserving, this approach unfairly makes New Jersey victims of discrimination and retaliation shoulder the burden of property tax relief and school aid.

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