States ask Supreme Court to hear SALT cap challenge

A multistate coalition that includes New York, Connecticut, Maryland and New Jersey petitioned the U.S. Supreme Court Monday to review a 2nd Circuit Court of Appeals ruling that the cap on state and local tax deductions does not violate the Constitution.

Those states have long contended that the SALT cap, ushered in by the Trump Administration’s 2017 Tax Cuts and Jobs Act (TCJA), interferes with states’ rights and disproportionality harms certain taxpayers.

“The SALT deduction cap is nothing less than double taxation on New Yorkers,” said New York Gov. Kathy Hochul in a release, adding, “I am proud that we are taking this issue to the Supreme Court to continue to fight on behalf of New York taxpayers.”

The petition for Supreme Court review stems from a lawsuit originally filed in 2018. New York and similarly situated states argued that the SALT deduction cap was enacted with political motivations and disproportionately impacts states that have high average SALT deductions.

Al Drago/Bloomberg

The states also argued that the SALT cap violates federalism principles because it interferes with states' rights to make their own fiscal decisions. The TCJA caps the state and local tax deduction at $10,000.

In 2019, the U.S. District Court for the Southern District of New York, found that the states had standing to bring the case in part because they demonstrated that the SALT cap made home ownership more expensive for some taxpayers. But ultimately, the court granted the federal government’s motion to dismiss the case because it deemed the SALT cap to be constitutional.

In October 2021 a three-judge panel of the U.S. Court of Appeals for the 2nd Circuit affirmed the district court, concluding that the SALT deduction cap does not unconstitutionally infringe on the fiscal sovereignty of the states and so does not violate the 10th Amendment.

In a statement about Monday’s appeal, New York attorney general, Letitia James, pointed to the damage that the SALT deduction cap has, and could, cause.

“This unfair cap has already placed a significant financial burden on countless hard working middle-class families in New York, and in the years to come, it is expected to cost New York taxpayers more than $100 billion,” James said.

According to an analysis by New York’s department of taxation and finance, New Yorker’s federal taxes are expected to increase by up to $15 billion a year due to the SALT cap. The attorney general’s news release regarding the lawsuit also points to “anecdotal evidence that New Yorkers — particularly the state’s highest earners — are already moving their homes and businesses to states like Florida because of the cap on SALT deductions.”

“Losing [those taxpayers who account for 46% of the state’s income tax collections] threatens the ability of the state to deliver on New York’s promise of providing opportunity to every person in the state,” the release states.

Advocates of repealing the SALT cap appeared to be gaining traction during last year’s negotiations over the Democrat’s social spending package. But the status of the House-passed $80,000 cap currently remains in limbo.

This is in part due to the opposition of Sen. Joe Manchin’s, D-W.Va., to the Build Back Better bill. But additionally, Senate budget committee chairman, Bernie Sanders of Vermont, along with Sen. Bob Menendez, D-N.J., have expressed concern that an increased SALT cap should be limited to certain income thresholds.

Meanwhile, Rep. Tom Suozzi D-N.Y., who has long-favored repealing the SALT cap, and helped coin the “No SALT, No Deal,” refrain during budget negotiations, responded on Twitter to the Supreme Court SALT cap appeal.

“Better late than never,” Suozzi tweeted Monday, adding, “It’s still NO SALT, no deal.”

Suozzi announced in November that he is leaving the House of Representative and plans to run for New York governor this year.