Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
Many tax practitioners say four northeastern states stand little chance of success with their recent lawsuit challenging the new federal tax law.
However, tax attorneys interviewed by Bloomberg Tax applauded the legal work that went into the complaint.
The case is “a stinker” but raises some interesting issues, Harry W. Drozdowski, an attorney with Anglin, Flewelling, Rasmussen, Campbell & Trytten LLP, told Bloomberg Tax.
“Could I see this making its way up a level or two?” he asked. “Potentially. But I do think ultimately this is a stinker.”
New York, New Jersey, Connecticut, and Maryland sued the Trump Administration July 17 to overturn the new $10,000 cap on the state and local tax deduction. They said the 2017 federal tax act ( Pub. L. No. 115-97) “targeted” the states and overturned more than 150 years of precedent.
Peter L. Faber, a partner at McDermott Will & Emery, said the lawsuit is a “long shot,” but “the drafters of the complaint have raised significant constitutional issues and they have put together an impressive work product.”
“There are, of course, many instances in which deductions for state and local taxes have been curtailed,” Faber told Bloomberg Tax in an email. “At one time, virtually all state taxes were deductible, but the list of deductible taxes has been reduced over the years and no one has complained.”
“Under present law, state and local income taxes are not deductible by people who do not itemize deductions or who are subject to the alternative minimum tax,” he said. “One can argue that a deduction for state income taxes is simply a subsidy paid indirectly to the states and that no state has a right to a federal subsidy.”
Faber also raised the issue of legal standing, asking whether an individual taxpayer should have brought the suit, rather than the states.
One of the key issues facing the court is the matter of “intent,” according to Faber and Drozdowski. They both cited the recent immigration cases in which the courts ruled that the intent of the Trump administration’s immigration policy was to discriminate against Muslims.
“I do think there’s some of that here,” Drozdowski said. “Courts are going to look at that.”
Adam P. Beckerink, a partner at Morgan, Lewis & Bockius LLP, said the states view the SALT deduction as a constitutional right, while the federal government views it as more of a benefit.
The states’ arguments are “interesting,” but it will be difficult for the states to win, he told Bloomberg Tax. “I’m not saying it can’t be won.”
To contact the reporter on this story: Gerald B. Silverman in Albany, N.Y. at email@example.com
To contact the editor responsible for this story: Ryan C. Tuck at firstname.lastname@example.org
Copyright © 2018 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)