The US Supreme Court has refused to hear the state of New York’s appeal of a Second Circuit ruling finding that the $10,000 state and local tax deduction cap enacted in 2017 as part of the Tax Cuts and Jobs Act was unconstitutional.[1]

The Second Circuit Court of Appeals ruled in the case of New York v. Yellen, Docket No. 19-3962-cv[2] that Congress had not violated the U.S. Constitution by limiting a deduction for state and local taxes to $10,000 on individual income tax returns. The Court noted:

What really propels the plaintiffs’ view that Congress is constitutionally foreclosed from eliminating or curtailing the SALT deduction is their position that, until 2017, Congress had never done so. We disagree that the Constitution imposes such a constraint on Congress.[3]

The panel found Congress’ action did not violate the Constitution simply because the federal government was reducing its subsidy of state taxes:

The Plaintiff States argue that principles of federalism protect each State’s “sovereign authority to raise revenue and determine their own fiscal priorities” and bar the federal Government from crowding States “out of traditional revenue sources.” Appellants’ Br. 31. But they have not demonstrated how the 2017 cap on the deduction unconstitutionally undermines their state sovereign authority over fiscal matters or their ability to raise revenue. The Plaintiff States fail to plausibly allege that their taxpayers’ total federal tax burden is now so high that they cannot fund themselves. And while they argue that the SALT deduction lowers “the effective cost of state and local taxes,” Appellants’ Br. 37– 38, they point us to nothing that compels the federal Government to protect taxpayers from the true costs of paying their state and local taxes.[4]

And the panel also rejected the view that the fact the change may have targeted some States meant it could not pass Constitutional muster:

Finally, the Plaintiff States complain that Congress unfairly targeted them. Given our discussion of the statutory history, it is obviously true that members of Congress were aware that the SALT deduction cap would adversely affect some States more than others. But the SALT deduction cap is not unlike the countless federal laws whose benefits and burdens are unevenly distributed across the country and among the several States. As noted above, “Congress may use its spending power to create incentives for States to act in accordance with federal policies,” as long as “pressure [does not] turn[ ] into compulsion.” NFIB, 567 U.S. at 577–78 (quotation marks omitted). At most, Plaintiff States’ allegations reflect that lawmakers were focused on the permissible legislative purpose of influencing tax policy. Nothing in Shelby County suggests that the equal sovereignty principle bars such a purpose.[5]

The Supreme Court refusal to hear the case means that the decision of the Second Circuit will stand, effectively ending the (frankly unlikely in the view of most observers) potential judicial overturning of the state and local income tax cap enacted as part of the Tax Cuts and Jobs Act.

[1] United States Supreme Court Order List, April 18, 2022, Case 21-966, New York, et al v. Yellen, certiorari denied, https://www.supremecourt.gov/orders/courtorders/041822zor_19m2.pdf (retrieved April 20, 2022)

[2] New York v. Yellen, Docket No. 19-3962-cv, CA2, October 5, 2021, https://www.tax.ny.gov/pdf/publications/orpts/legal/judicial-case-10-05-21.pdf (retrieved April 20, 2022)

[3] New York v. Yellen, Docket No. 19-3962-cv, CA2, October 5, 2021

[4] New York v. Yellen, Docket No. 19-3962-cv, CA2, October 5, 2021

[5] New York v. Yellen, Docket No. 19-3962-cv, CA2, October 5, 2021