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General business credit items
Holding: Addressing the jurisdic-
tional issues first, the Second Circuit held
Proportions of $26 billion in current-year and allowable credits on returns of active C corporations
that the states had standing and the case
other than real estate investment trusts and regulated investment corporations. Tax year 2013.
was not barred by the Anti-Injunction
(Percentages do not total 100% due to rounding.)
Act. Regarding the latter, the court noted
that the Anti-Injunction Act does not
bar a tax claim if the plaintiff has no Low-income housing
33%
alternative legal way to challenge the tax
provision, such as a suit for refund. Since New markets
the states had no other way to assert their 6%
claims, the Second Circuit held that the Work opportunity
Anti-Injunction Act did not bar the case. 5%
Regarding standing, the government Orphan drug
4%
did not dispute that if the states suffered
3%
an injury, such injury could be traced to Renewable electricity production
the government, and a judicial outcome 6%
in favor of the states would remedy such Other
44%
injury. Accordingly, the only remaining
question regarding standing was whether Research activities
the states were injured by the cap on the
SALT deduction. The states argued that
Source: IRS Tax Statistics, Corporation Complete Report, Table 21.
the cap makes home ownership more
expensive, resulting in lower prices, fewer
sales, and reduced revenues from real
estate transfer taxes. Further, the states Second Circuit noted that Congress does held a federal incentive was unconsti-
provided specific estimates of the mag- not seem to view its authority relating tutionally coercive because failure to
nitude of such reduced revenues. New to the SALT deduction to be limited in adopt it would cost a state 10% of its
York estimated that the SALT cap would any way. The court specifically noted that budget. Although the Second Circuit
cause its real estate transfer tax revenue two tax provisions enacted in 1986 (the acknowledged the loss of state tax
to decrease by $15.3 million in 2019 and alternative minimum tax and removal of revenue resulting from the SALT cap,
$69.2 million in 2020, Maryland esti- state and local sales taxes from the SALT it found the amounts to be too small
mated its transfer tax revenue to decline deduction) and one in 1990 (the “Pease” in relation to an entire state’s budget
by $52.3 million over two years, and New limitation on all itemized deductions) to be considered coercive in violation
Jersey estimated a reduction of $105.1 also effectively curtailed the availability of the 10th Amendment.
million over the same period. Finding of the deduction, and it concluded that ■ New York v. Yellen, No. 19-3962
the chain of economic events presented the Constitution does not limit Con- (2d Cir. 10/5/21), aff’g No. 18-CV-6427
by the states to be “realistic,” the Second gress’s power to impose a cap. (S.D.N.Y. 9/30/19)
Circuit held that the loss of revenue is an The Second Circuit found no
injury, thereby giving the states standing evidence that the cap infringes on — By Laura Lee Mannino, CPA, J.D.,
to sue the government. state sovereignty in violation of the LL.M., associate professor of taxation,
Turning to the merits of the case, the 10th Amendment. The court was St. John’s University, Queens, N.Y.
court noted that the states’ claim that the unpersuaded by the argument that the
SALT deduction was constitutionally SALT cap targeted particular states.
mandated was primarily based on the It said that Congress is permitted to Tax treatment of
COVID-19 homeowner
fact that Congress had not eliminated use its taxing authority to provide
or curtailed the SALT deduction since incentives that encourage some states relief payments clarified
its inception — at least, not until 2017. to adjust their policies so long as the
However, neither Article 1, the 16th incentives do not amount to pressure Payments are excluded from
Amendment, nor the 10th Amendment or compulsion to adopt the federal gross income; a safe harbor is
specifically mentions the SALT deduc- policy. Such compulsion was present provided for itemized deductions.
tion, nor do they place any limitations on in National Federation of Independent
Congress’s power to change the deduc- Business v. Sebelius, 567 U.S. 519 Homeowners who receive or benefit
tion. From a historical perspective, the (2012), where the Supreme Court from payments from a federal

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