We're halfway through the second year of the Tax Cuts and Jobs Act (TCJA) and its effects, pro and con, are still being debated.
Some of those disputes will play out in court, like the latest challenge to the tax reform law's limits on federal tax deductions for state and local taxes (SALT).
This latest SALT legal action, brought by New Jersey, New York and Connecticut, was prompted by Treasury's and the Internal Revenue Service's regulation, finalized last month, that effectively guts the charitable workarounds these states had created to provide their residents full federal tax benefit of their state tax payments.
A lawsuit filed last year by these three states plus Maryland challenging the $10,000 SALT cap itself is pending was dismissed on Sept. 30 by a federal judge.
The states had argued that the TCJA's limit on the SALT deduction was "an unconstitutional assault on states’ sovereign choices."
U.S. District Judge J. Paul Oetken in Manhattan was not persuaded. In tossing the lawsuit, Oetken said the plaintiff states ultimately failed to show that the SALT cap was unconstitutionally coercive or that it imposed on their own sovereign rights.
SALT effects nationwide: By now, taxpayers across the country are well aware of the TCJA's SALT limits.
In most cases, the complaints are coming from states like those involved in SALT litigation, where high income and property taxes prevent residents from claiming all their taxes on their federal Schedule A itemized taxes form.
So just how much does your state and more local jurisdictions collect in taxes? This week's Saturday Shout Out gives you an idea.
The Tax Foundation's map below gives you an idea of state rankings as far as individual income taxes.
It shows combined state and local individual income tax collections per capita in fiscal year 2016 for each state.
Since this map by the Washington, D.C.-based tax policy nonprofit examines only income taxes, my native and current state of residence, Texas, is not included.
The Lone Star State is one of seven that don't collect an individual income tax. The others are Alaska, Florida, Nevada, South Dakota, Washington and Wyoming.
Two other states, New Hampshire and Tennessee, tax investment income but not wage income. By 2021, Tennessee will be in the no income tax at all group, as its Hall Tax on investment earnings is being phased out and will end by then.
Property tax deduction problem, too: While income taxes obviously account for the largest amount of SALT across the country, there are places in even no-income-tax states where property values translate to steep local real estate taxes.
And, yes, The Tax Foundation has a map for that, too.
Homeowner complaints about the state's reliance on property taxes has t's been a major focus of Texas lawmakers during the legislature's last two sessions.
Before you shoot off your email, I'm well aware that the now-limited higher state taxes, be they from income and/or property, tend to be assessed wealthier taxpayers. That's why they were targeted in the creation of the TCJA limit.
And I totally realize that's is hard to generate much sympathy for those lamenting large local tax bills when they are paid very well and/or own a mini mansion.
But it's also worth noting that tax ramifications, both projected and unintended, are why it's always so hard to make major tax changes and why there will always be complaints when they finally are enacted.
You also might find these items of interest:
- 6 tax breaks that are gone or reduced
- Business tax deduction changes under the TCJA
- New tax law prompts moves from high- to lower-tax states
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