Four States Sue Treasury Department Over Cap on State and Local Tax Deduction

Yesterday, New York, New Jersey, Connecticut, and Maryland filed a complaint against the U.S. Treasury Department and others, seeking to invalidate the newly-enacted cap on the deduction for state and local taxes (SALT) on a filer's federal income tax return.  Prior to the 2017 changes to the tax law, all or a substantial portion of SALT could be deducted from a federal tax return.  After 2017, the deduction was capped at $10,000. According to the complaint:

A SALT deduction has been a part of every federal income tax law since the first federal income tax was enacted in 1861. The deduction is necessary to ensure that the exercise of the federal government’s tax power does not unduly interfere with the sovereign authority of the States to determine their own taxation and fiscal policies by crowding the States out of traditional revenue sources, like income, property, and sales taxes. The SALT deduction further ensures that States have the prerogative to determine the appropriate mix and level of public investments to make on behalf of their residents, as well as the authority to choose how to raise revenue to pay for those investments. The new cap on the SALT deduction will raise the federal tax liability of millions of taxpayers within the Plaintiff States. And by increasing the burden of those who pay substantial state and local taxes, the new cap on the SALT deduction will make it more difficult for the Plaintiff States to maintain their taxation and fiscal policies, hobbling their sovereign authority to make policy decisions without federal interference.

The complaint includes claims for declaratory and injunctive relief under the Tenth Amendment, Sixteenth Amendment, and Article I, Section 8 of the U.S. Constitution.

The case has been assigned to Judge Oetken.