Digital Tax Law Could Help Ease Loss of SALT Deduction: Professor

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By Ryan Prete

Congress should act on digital-sales taxation to make up for its tax bills’ taking away at least some of the federal deduction of state and local taxes, a tax professor suggested.

Richard D. Pomp, the Alva P. Loiselle Professor of Law at the University of Connecticut School of Law, said states were getting “screwed” by tax overhaul bills both Senate and House have passed. Currently, the federal code allows individuals to deduct the cost of sales, income, and property taxes paid to state and local governments. The House-passed bill (H.R. 1) and the Senate bill as passed Dec. 2 only allow for up to $10,000 in property tax write-offs.

“I think that Congress owes the states big time for screwing them over in this bill—maybe they’ll get marketplace,” Pomp said at a Dec. 4 panel at New York University’s Institute on State and Local Taxation. The Marketplace Fairness Act of 2017 (S. 976), which would expand states’ taxing authority over remote retailers, is pending and hasn’t received a Senate vote.

‘Pressure on States’

Pomp’s assertion comes as states await a U.S. Supreme Court decision on South Dakota Attorney General Marty Jackley’s (R) request for review of a state Supreme Court ruling that found the state’s “economic nexus” law, S.B. 106 (codified as S.D. Codified Laws Chapter 10-64), unconstitutional under Quill Corp. v. North Dakota—the 1992 U.S. Supreme Court ruling that prohibits states from imposing sales and use tax collection obligations on vendors without a physical presence in-state.

Jeff Friedman, a tax partner at Eversheds Sutherland (US) LLP, who spoke alongside Pomp, said he hopes the high court grants review of the South Dakota v. Wayfair case. Friedman also questioned Pomp on his assertion.

“So the theory is that because Congress’ tax reform bill reduces or in some cases eliminates the state and local tax deduction, this would be some sort of makeup?” Friedman asked.

“Congress is putting pressure on the states, and here is something Congress could do to reverse that,” Pomp replied.

To contact the reporter on this story: Ryan Prete in New York at rprete@bloombergtax.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bloombergtax.com

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