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SALT cap ruling challenged on appeal by four eastern states

Four states in the eastern U.S. will attempt to revive their lawsuit challenging the Trump administration’s cap on the deduction for state and local taxes, known as SALT, after a judge dismissed the case.

New York, Connecticut, Maryland and New Jersey will take their challenge to the federal appeals court in Manhattan after a judge tossed their lawsuit in September, New York Attorney General Letitia James and the state’s governor, Andrew Cuomo, said Tuesday in a statement.

The 2017 tax law passed by Republican lawmakers capped the amount of state and local taxes that can be deducted on individual returns at $10,000. Previously, there was no limit. Democrats in Congress and some state officials said the change targeted Democratic-led states that tend to have higher taxes. Cuomo called it “economic civil war.”

New York Gov. Andrew Cuomo, like other officials in high-tax states, is wrestling with the new tax legislation.
New York Governor Andrew Cuomo

The cap “is expected to cost New York’s taxpayers over $100 billion, which is why we will fight this senseless and unconstitutional law,” James said in the statement.

In September, U.S. District Judge J. Paul Oetken threw out a lawsuit, saying the federal government has the “exhaustive” power to impose and collect income taxes and that the states can enact their own tax policies as they wish.

Lawmakers in high-tax states have been trying to overturn the limit on SALT deductions since the law passed almost two years ago. The cap was one of the most politically contentious provisions in the 2017 tax overhaul.

New Jersey Governor Phil Murphy said in a statement that Trump is using the Internal Revenue Service “as a political weapon.” The state’s attorney general, Gurbir Grewal, called the cap “arbitrary and unprecedented.”

A media representative for the U.S. Treasury Department, which runs the IRS, didn’t immediately return a message seeking comment.

The case is State of New York v. Mnuchin, 18-cv-6427, U.S. District Court, Southern District of New York (Manhattan).

Erik Larson
Bloomberg News