The Supreme Court declined to review a New York-led constitutional challenge to the $10,000 cap on state and local tax deductions imposed by Congress in the 2017 tax law.
The high court issued an order Monday denying the request from New York, New Jersey, Maryland, and Connecticut to review a decision of the U.S. Court of Appeals for the Second Circuit. The appeals court rejected several state legal arguments against the cap, including that it unconstitutionally coerces the states to abandon their preferred fiscal policies.
The cap generally blocks taxpayers who itemize federal deductions from deducting more than $10,000 per year for paid state and local taxes, including property taxes and either income or sales taxes.
The states argue the cap unconstitutionally interferes with their sovereign authority to levy and collect property and income taxes. The Second Circuit rejected their arguments, finding that neither Article I of the Constitution nor the 16th Amendment bars Congress from curtailing the SALT deduction, even if that means citizens in certain states will pay billions of dollars in additional federal taxes.
Such injuries aren't significant enough to be coercive under the Tenth Amendment, the appeals court ruled.
"It is obviously true that members of Congress were aware that the SALT deduction cap would adversely affect some States more than others," the Second Circuit said. "But the SALT deduction cap is not unlike the countless federal laws whose benefits and burdens are unevenly distributed across the country and among the several States."
Joe Bishop-Henchman, vice president of tax policy and litigation at the National Taxpayers Union Foundation, said the states' petition was "meritless and probably was only filed so New York could pretend it was doing something."
Nothing about a deduction for the 12% who still itemize is constitutionally mandated, he said. "While it is true that high taxes can harm competitiveness, New York should solve that problem in Albany not the federal courts."
Peter Lowy, shareholder at Chamberlain, Hrdlicka, White, Williams & Aughtry PC, said the cert denial by the highest U.S. court was "not surprising."
"When the SALT cap was enacted, there was not serious debate over its constitutionality," Lowy said.
Even so, several high-cost Democratic states that claimed to be targeted by the cap challenged it anyway, he said, with their best chance coming when they had home-field advantage in the district court and the Second Circuit with the case heard before Democratic-appointed judges.
"Once those judges uniformly rejected the challenge, it was a long shot that the current composition of the Supreme Court would take the case and change the outcome," Lowy said.
