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Md. Joins Appeal of Court Ruling on State and Local Tax Deductions

Maryland Attorney General Brian E. Frosh (D). File photo

Maryland is joining other East Coast states in continuing a legal challenge of federal tax reforms that cap deductions of local and state taxes ― raising bills for some residents in high-tax states.

The attorneys general of New York, New Jersey, Connecticut and Maryland announced on Tuesday that they will appeal a U.S. District Court decision from earlier this year to the Court of Appeals for the Second Circuit.

The attorneys called the so-called SALT cap ― which stands for state and local taxes ― an “unlawful and unprecedented” reform and a “politically motivated bid to effectively raise property taxes in predominantly Democratic states,” in a New York State press release.

Conduit Street, a newsletter of the Maryland Association of Counties, was the first Maryland entity to report about the states’ appeal.

The states filed the case in 2018 after the Republican-controlled Congress passed the Tax Cuts and Jobs Act of 2017.

Among other changes, the new law drastically reduced the SALT deduction by capping it at $10,000. An analysis by the Maryland Comptroller’s Office in 2018 concluded that more than a half-million Maryland tax filers claimed the full SALT deduction before the change in state law. The average deduction was about $11,800 more than the new $10,000 cap in 2014, according to the report.

The states that filed the appeal are considered “donor states,” contributing more to federal taxes than they receive in federal funding.

In September, a U.S. District Court Judge in New York dismissed the lawsuit filed by the states against the IRS. Judge J. Paul Oetken said the states had failed to show that the SALT cap was unconstitutionally coercive or limited states’ rights.

Several pieces of legislation to restore the SALT deduction have been introduced in the 116th Congress, but the measures have failed to move forward.

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Md. Joins Appeal of Court Ruling on State and Local Tax Deductions