Tax deductions

US Court of Appeals dismisses 4-state challenge to state and local tax caps | News from USA®

NEW YORK (Reuters) – A federal appeals court on Tuesday rejected efforts by four Democratic-leaning U.S. states to overturn former Republican President Donald Trump’s decision to limit federal deductions from state and local taxes.

In a 3-0 decision, the 2nd U.S. Court of Appeals in Manhattan said the federal government had the power to impose a $ 10,000 cap on state and local taxes that itemized household deductions could write off on their federal returns.

The move is a defeat for New York, Connecticut, Maryland and New Jersey, which challenged the so-called SALT cap put in place as part of a $ 1.5 trillion tax review in 2017.

This law also reduced taxes for wealthy Americans and the corporate tax rate. Trump signed it after the approval of a Republican-controlled congressional party line vote.

The office of New York Attorney General Letitia James, who argued the states appeal, did not immediately respond to requests for comment.

Many Congressional Democrats are in favor of repealing or relaxing the SALT cap at least temporarily, but may have to offset the costs as the Biden administration tries to push through a broad set of social safety nets.

The Congressional Joint Non-Partisan Committee on Taxation said repealing the SALT cap could cost the US Treasury $ 88.7 billion this year.

The SALT deduction has been around since the inception of the modern U.S. tax system over a century ago.

The deduction cap disproportionately affects high-tax states, with New York estimating that its taxpayers would pay $ 121 billion in additional federal taxes from 2018 to 2025.

All four states called the cap an unconstitutional means by the federal government to force states it “disfavors” to reduce taxes and the services they pay, such as hospitals, police, schools and building. roads and bridges.

Circuit judge Raymond Lohier, however, said the States had failed to show their injuries were significant enough to be coercive.

He also called the cap “countless” federal laws whose benefits and burdens are unevenly distributed among states, and said it had a “disproportionate effect” on the four states because they had the most. benefited from the SALT deduction.

“We do not want to minimize the losses of complaining states or the impact of the cap on their respective economies,” he wrote. “But we find it unlikely that the amounts in question give rise to a constitutional violation.”

Tuesday’s ruling upheld a September 2019 ruling by U.S. District Judge Paul Oetken in Manhattan.

The case is New York et al v Mnuchin et al, 2nd United States Court of Appeals, No. 19-3962.

(Reporting by Jonathan Stempel in New York; Editing by Mark Porter, Kirsten Donovan and Bill Berkrot)

Copyright 2021 Thomson Reuters.

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