New Jersey Attorney General Gurbir Grewal has joined three other states in appealing the court decision that allowed the Trump Administration to impose a $10,000 cap on the federal tax deductions for state and local taxes, commonly referred to as SALT.
New York, Connecticut, and Maryland, the same other states that initially filed a lawsuit in 2018, are also appealing the decision. The lawsuit seeks to prevent the U.S. government from enforcing the SALT cap, and calls for the cap to be declared invalid. The appeal was filed in the U.S. Court of Appeals for the Second Circuit.
“Today we are continuing to fight for New Jersey taxpayers in court,” said Grewal in a written statement. “The federal government acted unlawfully when it imposed arbitrary and unprecedented limits on the tax deduction for state and local taxes, and it harmed residents all across our state when it did so.”
New Jersey Governor Phil Murphy said the Trump Administration is using the IRS as a political weapon. “My Administration remains committed to finding solutions for homeowners wrongly targeted by the federal tax law that limited SALT deductions and exploring all possible avenues to restore full deductibility for our residents,” Murphy said in a written statement.
In 2017, the Federal Government amended the federal tax code. Previously, taxpayers who itemized their deductions could deduct from their federal tax liability all money paid for state and local income, property, and sales taxes. Under the new code, the same taxpayers are only permitted to claim up to $10,000 for those taxes.
State officials said that no previous federal tax law has capped the federal income tax deduction for SALT at such a low amount, and that the U.S. government has always provided a deduction for all or a significant portion of state and local taxes.
The original multi-state lawsuit, filed in the Southern District of New York in July 2018, argues that the SALT cap will depress home prices and reduce overall spending, harming New Jersey’s economy. The multistate coalition also argues that the SALT cap will interfere with states’ autonomy to make their own tax decisions, will disproportionately harm taxpayers, and was unlawfully enacted to target New Jersey and similarly situated states.
Grewal has also filed a lawsuit against the Internal Revenue Service, urging the federal court to find invalid an IRS rule that prevents New Jersey residents from obtaining a full federal charitable deduction when they contribute to local governments and other qualifying institutions and receive tax credits in return. That separate case is ongoing before the Southern District of New York. New York and Connecticut joined that lawsuit as well.