Multistate – States Sue IRS, Treasury To Strike Down SALT Cap Under New Tax Law

Connecticut, Maryland, New Jersey, and New York filed a lawsuit in federal court to eliminate the $10,000 limit on SALT (State and Local Tax) deductions imposed as part of the Tax Cuts and Jobs Act (TCJA).

“The lawsuit names Treasury Secretary Steven Mnuchin and IRS acting Commissioner David Kautter, as well as the U.S. Treasury, the Internal Revenue Service (IRS) and the United States of America (including all government agencies and departments responsible for the passage and implementation of TCJA) as defendants. The plaintiffs – the states of Connecticut, Maryland, New Jersey, and New York – are seeking “declaratory and injunctive relief” to eliminate the cap. What that means is that the states are asking the courts to declare that the cap will not be enforceable; there is no separate request for money or other damages.

According to the complaint, Congress has included a deduction for all or a significant portion of state and local taxes in every tax statute since the enactment of the first federal income tax in 1861. I know that sounds early, so some context is important. The first U.S. income tax was imposed in 1861 but was struck down as unconstitutional; the Sixteenth Amendment, ushering in a new federal income tax system, was ratified in 1913 (you can read more on the history of our tax system here).

The complaint argues that those who drafted the Sixteenth Amendment understood that “the SALT deduction is essential to prevent the federal tax power from interfering with the States’ sovereign authority to make their own choices about whether and how much to invest in their own residents, businesses, infrastructure, and more—authority that is guaranteed by the Tenth Amendment and foundational principles of federalism.” The SALT cap, the plaintiffs argue, disregards States’ rights and the “distinct and inviolable role in our federalist scheme.” And, the complaint continues, “as many members of Congress transparently admitted, it deliberately seeks to compel certain States to reduce their public spending.” That, the complaint argues, is unconstitutional.”

Jul 17, 2018, 04:02pm 53,719 views #TaxTime
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States Sue IRS, Treasury To Strike Down SALT Cap Under New Tax Law