Dead End for SALT Deduction Cap Lawsuit
The nation’s highest court rejected a challenge from Connecticut and three other states to a 2017 tax law capping federal tax deductions for state and local taxes.
A U.S. District Court ruling in 2019 found the federal government had the authority to set federal income tax limits.
Connecticut joined New Jersey, Maryland, and New York challenging the law, claiming it interferes with the states’ constitutionally granted taxing authority.
An appeals court previously dismissed the lawsuit in October 2021.
The U.S. Supreme Court declined to hear the states’ appeal April 18.
The cap, set at $10,000 for state and local taxes, impacts taxpayers in high-tax states.
Connecticut implemented a pass-through entity tax, offset by a tax credit, in 2018, allowing small businesses to avoid the cap.
However, lawmakers in Connecticut reduced the tax credit in a 2019 budget-balancing move, costing small businesses $53 million annually.
CBIA has since called for policymakers to restore the credit to its original level.
Revenues from the state’s pass-through entity tax are up $700 million this fiscal year.
At the federal level, lawmakers have discussed increasing the cap on state and local taxes.
Legislation passed in the House of Representatives, but not in the Senate.
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