FEDERAL JUDGE DISMISSES NEW YORK STATE LAWSUIT CHALLENGING $10,000 SALT DEDUCTION CAP -

A federal district court judge has dismissed a suit brought by New York State (together with Connecticut, New Jersey, and Maryland) that sought to invalidate on constitutional grounds the $10,000 cap on state and local tax (“SALT”) deductions enacted as part of the Federal Tax Cuts and Jobs Act of 2017 (“TCJA”). New York, et al. v. Mnuchin, No. 18-CV-6427 (JPO) (S.D.N.Y., Sept. 30, 2019). At the time the suit was brought, many felt that the states faced considerable hurdles in pursuing their constitutional challenge. The 37-page decision confirms that those hurdles are indeed considerable.

Background. The federal legislation limited to $10,000 the federal itemized deduction for individuals for the aggregate of state and local property taxes and income and sales taxes (“SALT cap”). In July 2018, New York and the other States (the “Plaintiff States”) sued the U.S. Department of Treasury (among others, collectively, the “Government”) in federal court, claiming that the SALT cap violates principles of federalism contained in the U.S. Constitution, specifically the 10th Amendment (state sovereign authority), the 16th Amendment (which authorized the federal income tax), and also raised a “coercion” claim rooted in the 10th Amendment, and was therefore invalid. The Government filed a motion to dismiss, and the Plaintiff States filed a cross-motion for summary judgment.