U.S. Supreme Court Will Not Hear Arguments on SALT Cap Deduction

On Monday, April 18, 2022, the U.S. Supreme Court decided against hearing a case brought by New York, Connecticut, Maryland, and New Jersey that challenged the state and local tax (SALT) cap on federal deductions. The SALT cap was a major component of the Tax Cuts and Jobs Act of 2017. The SALT cap limited the state and local tax deduction on federal taxes to $10,000. The impact has been substantial in many high tax states that impose state and local taxes on income and real property (e.g. California, New York, etc.). The court ultimately refused to reconsider the state’s argument on the constitutionality of the SALT cap limit. A lower court ruled in October that the SALT cap limit was within Congress’s authority and that it is not uncommon for the impact of federal laws to vary from state to state and location to location.

The court’s decision is certainly a setback for Democratic states with high state and local taxes. Gov. Kathy Hochul of New York called on Democrats to address the SALT cap, but the issue is highly politicized with many legislators arguing the cap is largely beneficial to wealthy taxpayers. The SALT cap issue has led many states to create workarounds allowing pass-through entities to take an unlimited SALT deduction at the entity level. This workaround is expected to continue given the court’s decision on Monday.

If you have questions on the court’s decision or other SALT matters, please contact HBK’s SALT Advisory Group at hbksalt@hbkcpa.com.