States Have No Constitutional Claims to Challenge SALT Deduction Cap

States Have No Constitutional Claims to Challenge SALT Deduction Cap

On October 5, 2021, the United States Court of Appeals for the 2nd Circuit affirmed a New York federal district court and rejected four states’ constitutional challenges to the $10,000 limitation on the federal income tax deduction for state and local taxes paid by individuals, enacted as part of the 2017 Tax Cuts and Jobs Act (the SALT deduction cap).

The four states, Connecticut, Maryland, New Jersey, and New York, argued that the SALT deduction cap is unconstitutional, because:

  1. The SALT deduction is constitutionally mandated by the 16th Amendment, and alternatively
  2. It violates the 10th Amendment because it coerces states to abandon their preferred fiscal policies.

While the District Court and 2nd Circuit agreed the states had standing to sue the federal government, the District Court’s dismissal of the case for failure to state a claim on the merits was upheld and affirmed by the 2nd Circuit.

The 2nd Circuit agreed with the District Court that an unlimited or “significant” SALT deduction is not constitutionally mandated by the 16th Amendment. After a lengthy discussion on the history of income taxation in the United States, as well as the history of SALT deduction, the court determined that nothing in the text of the Constitution (specifically under the 16th Amendment) or the history of the SALT deduction mandates a full deduction.

Further, the 2nd Circuit concluded that the SALT deduction cap does not unconstitutionally infringe on state sovereignty. The states argued the SALT deduction cap coerces them to abandon their preferred fiscal policies. The 2nd Circuit responded that it “agree[s] with the District Court that ‘the bare fact that an otherwise valid federal law necessarily affects the decisional landscape within which states must choose how to exercise their own sovereign authority hardly renders the law an unconstitutional infringement of state power.’” Simply put, the states failed to prove that their taxpayers’ total federal tax burden is so high that the states cannot fund themselves.

Finally, the 2nd Circuit dismissed the states’ claim that the SALT deduction cap violates the independent constitutional principle of equal sovereignty. The 2nd Circuit reasoned the SALT deduction cap had no effect on state sovereignty, as the SALT deduction cap applies to all states, and the plaintiff states benefitted most from the pre-TCJA SALT deduction.


  • It is unknown whether New York, Connecticut, Maryland, and New Jersey will petition for a writ of certiorari to ask the U.S. Supreme Court to accept an appeal of their case. Meanwhile, many states have enacted elective pass-through entity tax workarounds to mitigate the SALT deduction cap’s impact on partners and shareholders of closely held businesses.
  • The SALT deduction cap is also being negotiated in Congress as part of the $1.5 trillion infrastructure bill, though it is uncertain whether a provision related to the SALT deduction cap will be included in the final bill.    


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