Personal Finance

New York, New Jersey and Connecticut say they will sue federal government over caps on tax deductions

Key Points
  • Three states have formed a coalition, intending to challenge the new tax code.
  • State officials argue that the curtailment of the state, local and property tax deductions unfairly impacts them.
New York Governor Andrew Cuomo
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In the latest battle over state and local tax deductions, New York's governor Andrew Cuomo announced that the Empire State, along with New Jersey and Connecticut, plan to sue the federal government.

Cuomo announced the formation of a coalition between the three states on Friday, Jan. 26 to challenge the Tax Cuts and Jobs Act, arguing that the new code "preempts the states' ability to govern by reducing the ability to provide for their own citizens and unfairly targets New York and similarly situated states in violation of the Constitution."

The new tax law includes a provision that caps state and local tax (SALT) deductions at $10,000.

In 2015, the average New Yorker's SALT deduction was $22,000. Meanwhile, residents in New Jersey and Connecticut claimed nearly $20,000 in SALT deductions.

In the announcement, Cuomo suggested that the federal government purposefully attacked certain states.

"Do you really think it's a coincidence that Trump lost all the states? Do you really think it's a coincidence that they are blue states?" Cuomo said in a conference call on Friday with officials from the other states.

The announcement of the coalition's intent to sue is only the latest salvo in the states' fight with the White House over the deductibility of local levies. New York, along with other high-tax locales, have been crafting plans that would allow residents to make charitable contributions and collect a deduction in order to make up for the cap on state and local tax breaks.

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The White House has expressed its disapproval.

"I hope that the states are more focused on cutting their budgets and giving tax cuts to their people in their states than they are in trying to evade the law," said Steven Mnuchin, U.S. Treasury Secretary, at a press briefing this month.

This is the first time the states have taken steps to challenge the legality of the entire tax code.

Abbey Fashouer, first deputy press secretary for New York Governor Andrew Cuomo, said the lawsuit will grow.

"We expect more states will enter this effort," she said.

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