New York to Sue Federal Government over Tax Reform

In an aggressive move Friday, New York Governor Andrew Cuomo, along with New Jersey Governor Phil Murphy and Connecticut Governor Dannel Malloy, announced a coalition to sue the federal government regarding the recently passed Tax Cuts and Jobs Act. Each feels the bill is illegal, and a violation of states’ rights.

Previous to this plan, New York began exploring options to end its income tax to expand its already-existing payroll tax. The move aims to help high-income earners.

Another high-tax state, California announced similar plans in response to the recent federal law passing. The new federal law reduces deductions on state and local taxes, impacting residents’ tax deductions and state revenue. The tax bill caps deductions at $10,000.

One avenue New York is exploring includes the creation of two state-controlled charities. New York residents could donate to these and then write their contributions off when filing their federal taxes. However, some argue it is not a charitable donation if done for the sole purpose of a tax write-off. The IRS has not given New York a definite answer on whether this is a feasible, and moral, approach.

Another proposal from New York to circumvent tax reform would be keeping the current income tax and levying a payroll tax on employers based on each employee’s tax withholdings. Governor Cuomo has not expressed a favorite option of any of New York’s choices, but remains steadfast in seeking to offset tax reform.