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This week, New York, New Jersey and Connecticut filed a lawsuit after the Treasury Department and IRS squashed a workaround these states were using to give their taxpayers relief.
Democratic New York Gov. Andrew Cuomo said in a statement on Wednesday that the Trump administration’s ruling “undermines states’ efforts to protect [their] taxpayers against the unprecedented, unlawful and politically motivated capping of the SALT deduction.”
“The IRS regulations lack any basis in the law, upend decades of precedent without authorization from Congress, and target programs established by New York and other states to incentivize charitable contributions,” Cuomo said.
The Tax Cuts and Jobs Act capped SALT deductions at $10,000 – which is well below the average amounts claimed by individuals residing in states such as New York, California and New Jersey. The average deduction claimed in California, for example, is $22,000, according to Kevin de Leon, a Democratic member of the California state senate.
In response, a number of state governments proposed or enacted legislation that would allow taxpayers to make charitable contributions to an established state fund in order to earn a credit. The goal would be to allow residents to take the full amount given as a deduction by transforming a non-deductible payment into a charitable contribution.
The Treasury Department officially issued regulations that prohibit high-tax states from utilizing the workaround in June – instead requiring taxpayers to subtract the value of their state and local tax deductions from their charitable contributions.
Meanwhile, the trio of states – along with Maryland – have filed a lawsuit, which is ongoing, challenging the SALT cap’s constitutionality.