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Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York and multistate tax law. Noonan's Notes Blog is a winner of CreditDonkey's Best Tax Blogs Award 2017.


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States File Appeal in SALT Cap Litigation

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A week or so ago, New York Governor Andrew M. Cuomo and New York Attorney General Letitia James announced that New York, Connecticut, Maryland and New Jersey filed a notice of appeal in the United States Court of Appeals for the Second Circuit to continue litigation against the federal government for its unlawful and unprecedented cap on the deduction for state and local taxes, known as SALT. The SALT deduction was capped at $10,000 as part of President Trump’s Tax Cuts and Jobs Act of 2017 (TCJA). This appeal challenges a September 30, 2019 ruling by Judge J. Paul Oetken of the U.S. District Court for the Southern District of New York stating that the $10,000 SALT deduction cap is not unconstitutionally coercive. Judge Oetken held that the states had not plausibly alleged that the cap meaningfully constrains their decision-making processes. We covered the ruling here. He denied the states' motion for summary judgment in their original suit, State of New York et al v. Mnuchin. The four states argued that the SALT cap is a politically motivated bid to effectively raise property taxes in predominately Democratic states.

This appeal is no surprise, but for those of you who are have not been following the SALT cap litigation since its onset July 18, 2018, here’s a brief recap. We covered the breaking news on the original SALT cap lawsuit here. The states banded together and filed a complaint against the federal government arguing that the SALT deduction cap is unconstitutional and should be blocked from enforcement. The states noted that the SALT cap: (1) was enacted to target New York and similarly-situated states; (2) that it interferes with states' rights to make their own fiscal decisions; and (3) that it disproportionately harms taxpayers in those states. New York State Governor Cuomo, in a press call, also said that the cap violates the 10th Amendment, the 16th Amendment and Article 1, Section 8 of the U.S. Constitution.

On November 2, 2018, the federal government moved to dismiss the SALT cap suit here.  In asking the federal district court to dismiss the case, the federal government attorneys noted there were threshold jurisdictional issues barring the suit; that the states cannot pursue injunctive relief to prevent the payment of taxes or use of the SALT cap; and that under the TCJA, the majority of residents would be paying fewer federal taxes given the lowered tax rates and larger standard deductions.

The states then filed a cross motion for summary judgment December 14, 2018. The states were adamant about fighting the cap. In the period before the two motions were filed, ANOTHER SALT cap lawsuit was brought July 17, 2019! We covered it here. In the second suit, three states--New Jersey, New York, and Connecticut-- argued that the June 2019 IRS regs that basically shut down the charitable deduction workarounds that these states put into play violated the Administrative Procedure Act (APA) and the Regulatory Flexibility Act and thus, should be declared unlawful and vacated. The final regs require taxpayers to subtract the value of state and local tax credits for charitable giving from their federal charitable contribution deduction. Connecticut, New York, and New Jersey have enacted legislation allowing localities to establish community funds that can accept charitable contributions. In exchange for making a donation, taxpayers can receive a tax credit toward their property tax liability.

Since the federal court dismissed the states’ original lawsuit, Cuomo remains unwavering in his quest to overrule the $10,000 SALT cap. "The Trump administration's SALT policy is retribution politics - plain and simple," Governor Cuomo said. He further noted, "New York is already the nation's leader in sending more tax dollars to Washington than we get back every year, and we will not allow this administration to pick the pockets of hard-working New Yorkers to fund tax cuts for corporations and send even more money to red states. We will continue to fight this unconstitutional assault until it is repealed once and for all."

New York Attorney General Letitia James shares Cuomo’s sentiment. "This cap has already put a heavy burden on the hard-working, middle-class families of New York, and, in the years ahead, it is expected to cost New York's taxpayers over $100 billion, which is why we will fight this senseless and unconstitutional law," said Attorney General James. "New York will not be bullied into paying more in taxes or changing its vital public investments because of Congress and the president's partisan choices," James added.

Things are heating up again, not only in the courts but in our legislative branch. Ironically, there is talk of Congress voting on a bill to temporarily repeal the SALT cap as early as next week. Many federal lawmakers have steered away from giving details about the bill’s contents. Stay tuned as the SALT cap lawsuit appeal progresses!

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