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TRENTON – Attorney General Gurbir S. Grewal this week joined three other states in appealing a decision that allowed the Trump administration to impose an unprecedented $10,000 cap on the federal tax deduction for state and local taxes, known as SALT.
New York, Connecticut and Maryland, the same four states that initially filed this lawsuit in 2018, joined the appeal. The lawsuit seeks to prevent the U.S. government from enforcing the SALT cap, and to have the cap declared invalid. The appeal was filed in the U.S. Court of Appeals for the Second Circuit.
Gov. Phil Murphy welcomed the action.
“The Trump Administration continues to use the IRS as a political weapon which affects thousands of hardworking residents of New Jersey and similar states,” Murphy said. “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.”
“Today we are continuing to fight for New Jersey taxpayers in court,”Grewal said in a release. “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. That’s why I am proud to stand with Gov. Murphy as we continue to push back against Washington.”
In 2017, the federal government adopted a drastic change to 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 a comparatively small deduction of up to $10,000 for those taxes.
Throughout U.S. history, no federal tax law violated the interests of states by capping the federal income tax deduction for SALT at such a low amount, Grewal said. In America’s 243 years of existence, the U.S. government has always provided a deduction for all or a significant portion of state and local taxes.
Grewal said the SALT cap is expected to depress home prices and reduce overall spending, harming New Jersey’s economy, and interferes with states’ autonomy to make its own tax decisions.
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.
