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States Forming Coalition to Challenge SALT Deduction Limits

Posted on January 29, 2018 by Paige Jones

New York, New Jersey, and Connecticut are organizing a multistate coalition to challenge the constitutionality of the new restrictions on the federal deduction for state and local taxes.

Under the recently enacted federal tax law, individuals can claim up to $10,000 of state and local property taxes and either income or sales taxes. Federal and state officials from high-tax blue states like New York decried the curbed SALT deduction as an economic assault on their many residents who claim the deduction.

“Not only do we find it philosophically repugnant and practically damaging, but legally, we believe there is a very strong argument that it’s unconstitutional,” New York Gov. Andrew Cuomo (D) said of the SALT limit in a January 26 media call with Govs. Phil Murphy (D) of New Jersey and Dan Malloy (D) of Connecticut.

“We’re going to be working together to form a multistate coalition that will challenge this in court," Cuomo said.

The law’s $10,000 SALT deduction cap for individuals is unconstitutional, Cuomo said, because it violates states’ rights and constitutes double taxation.

Murphy slammed the provision as unsound tax policy.

“It’s clear it’s politically motivated [and that] it’s punishment of blue states like New Jersey, New York, and Connecticut, and others who already pay far more into the federal government than we receive,” Murphy said. “I’m not going to let it happen.”

The governors said the lawsuit would be filed in federal court in the next few weeks.

“We’ll choose the best and most appropriate venue when the time comes, but it probably will be a venue within our area [since] we three states are most affected,” Malloy said.

In the media call, the governors said they are in the process of contacting other states to join the lawsuit.

“The more like-minded states that join us, I think the better our shot,” Murphy said.

The announcement comes almost two months after Cuomo, Murphy, and California Gov. Jerry Brown (D) said they were exploring legal action to the Tax Cuts and Jobs Act. It is unclear if California would join the suit. Brown spokesman Ali Bay told Tax Analysts, “We’ll let you know if there’s action on this issue.”

Murphy added that the states are still pursuing other angles to fight the new federal tax reform law.

“Just because we’re taking aggressive legal action as a group of states doesn’t mean our creative juices and other alternatives will be ignored or shut back,” the New Jersey governor said.

State lawmakers in New York and New Jersey have proposed several pieces of legislation to mitigate the impact of the new tax law. Cuomo plans to propose a plan to restructure the state’s tax code from that of an income tax system to a payroll one in the next month. Malloy said his state is also considering it.

Cuomo likened the Republican tax law to a missile, saying his three-pronged plan to fight the law by challenging it in court, launching a public protest campaign, and restructuring the state code is a plan for survival.

“Washington launches the missile; it’s headed this way; you have two options: Stand where you are and be devastated, or run for your life,” Cuomo said, adding that the latter option is what New York is doing.