New York, Connecticut and Other States File Appeal of SALT Reform Court Ruling

Real Estate In-Depth | November 2019

ALBANY—New York Gov. Andrew M. Cuomo and New York Attorney General Letitia James announced that New York, Connecticut, Maryland and New Jersey have filed a notice of appeal to the U.S. Court of Appeals for the Second Circuit to continue litigation against the federal government for what they term as the unlawful and unprecedented cap on the deduction for state and local taxes, known as SALT.

This appeal challenges a Sept. 30 ruling by the U.S. District Court for the Southern District of New York that rejected the states’ suit, which argues that the SALT cap is a politically motivated bid to effectively raise property taxes in predominately Democratic states.

“The Trump administration’s SALT policy is retribution politics—plain and simple,” Gov. Cuomo said. “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 We will continue to fight this unconstitutional assault until it is repealed once and for all.”

“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 tax payers over $100 billion, which is why we will fight this senseless and unconstitutional law,” said New York 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.”

The lawsuit, which was originally filed in July 2018 in the Southern District of New York, argued that the new SALT cap was enacted to target New York and similarly-situated states, that it interferes with states’ rights to make their own fiscal decisions, and that it will disproportionately harm taxpayers in these states. The top states with the highest average deduction for state and local taxes—a majority of which are Democratic – include New York, Connecticut, Maryland and New Jersey.

The 2017 Tax Act, which resulted from the Trump administration’s partisan agenda, reversing over a century of precedent in the federal tax code, drastically curtailed the state and local tax deduction by capping it at $10,000. An analysis by the New York State Department of Taxation and Finance projected that the cap would increase New Yorkers’ federal taxes by up to $15 billion annually. As one of the nation’s top donor states, this attack is significantly more damaging to New York than many other states, state officials note. Prior to enactment of the 2017 law, New York State already had the widest disparity among all states when factoring how much money New York sent to Washington and the funding it received in return. Other donor states, including Connecticut, Maryland and New Jersey are being similarly injured.

In its September ruling, despite ruling against the State of New York and its partner states, the U.S. District Court for the Southern District of New York agreed that the states had been injured based on their argument that the cap on the state and local tax deduction may depress home prices. By effectively raising state property taxes, the SALT cap will also reduce the value of a homeowner’s property, thereby discouraging home sales and decreasing the revenues the states are able to collect by taxing such sales.

Reports in the press also show anecdotal evidence that New Yorkers, particularly the state’s highest earners, are already moving their homes and businesses to states like Florida because of the cap on SALT deductions. In New York, the top 1% of taxpayers account for 46% of state income tax collections and losing them threatens the ability of the State to deliver on New York’s promise of providing opportunity for every person that contributes to making this state great.