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New York, New Jersey Take SALT Cap Lawsuit to Supreme Court

Jan. 3, 2022, 11:50 PM

New York and three other states took their challenge against a $10,000 cap on federal tax deductions for taxes paid to state and local governments to the U.S. Supreme Court on Monday.

The states—New York, Connecticut, Maryland, and New Jersey—are appealing an October ruling from the U.S. Court of Appeals for the Second Circuit, which affirmed a 2019 federal district court decision. The ruling upheld the $10,000 cap that Congress enacted in 2017 despite the states’ claims that all or much of the deduction was mandated by the U.S. Constitution and that the cap unconstitutionally coerced the states into discarding their preferred fiscal policies.

The states reiterated those arguments in their Monday petition for high court review, insisting that Congress enacted the cap in order create state revenue harms that would coerce them into lowering their tax rates and public investments. “As Congress itself recognized for over 150 years, a deduction for all or nearly all state and local income and property taxes is necessary to avoid federal intrusion on state sovereign taxing authority and policies,” the states wrote.

In a Monday statement, New York Gov. Kathy Hochul (D) said repealing the cap would “put more money into the pockets of New York families” and boost New York’s economy.

The Justice Department didn’t immediately return a request for comment.

New York, New Jersey, and Connecticut are also in an ongoing legal battle over the Treasury Department’s authority to issue regulations that tried to block state workarounds to the $10,000 federal deduction cap.

The case is New York v. Yellen, U.S., petition 1/3/22.

To contact the reporter on this story: Aysha Bagchi in Washington at abagchi@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Yuri Nagano at ynagano@bloombergtax.com