Attorneys general from 13 states are suing the Biden administration over a rule in the federal stimulus that bars states from using relief money to offset tax cuts.
The filing in U.S. District Court in Alabama asks judges to strike down the provision in the wide-ranging relief act signed by Biden that prohibits states from using $195 billion of federal aid “to either directly or indirectly offset a reduction” in net tax revenue. The restriction could apply through 2024. The coalition, which includes one Democratic Attorney General, is concerned the provision can construe any tax cut as taking advantage of the pandemic relief funds. Alabama Republican Attorney General Steve Marshall said the “federal tax mandate is an unprecedented and unconstitutional assault on state sovereignty.” Alaska, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota and Utah also signed onto the lawsuit. Ohio Attorney General Dave Yost, a Republican, earlier this month separately asked a federal judge to block the tax-cut provision.
A bigger group of 21 Republican Attorney General’s earlier this month wrote a letter seeking clarification from Treasury Secretary Janet Yellen, who is named in the new lawsuit. “Nothing in the Act prevents States from enacting a broad variety of tax cuts,” Yellen wrote in a response on April 23. “It simply provides that funding received under the Act may not be used to offset a reduction in net tax revenue resulting from certain changes in state law.” But West Virginia Attorney General Patrick Morrisey, who co-led the lawsuit with his colleagues from Alabama and Arkansas, argues the interpretation of the word “indirectly” in the provision could come back to haunt states that cut taxes. “This ensures our citizens aren’t stuck with an unforeseen bill from the feds years from now,” he said in a statement.
Several state legislatures are weighing tax reform this year, which is partly driving the lawsuit. West Virginia lawmakers are hurrying to approve a cut to the state income tax before their 60-day session ends on April 10. Montana’s GOP-controlled state house is considering several tax cut bills. Its Republican Attorney General Austin Knudsen said “it’s a slap in the face to Montana” to limit how the stimulus funds can be used. Arizona Attorney General Mark Brnovich asked the court in his March 25 lawsuit to declare the tax mandate unconstitutional. “Arizona is seeking a declaration that the Tax Mandate is unconstitutional: either because (1) it is too ambiguous to place valid conditions upon the States or (2) actually means what its sponsors intended, in which case it is a patently unconstitutional violation of the sovereignty of the States,” said Mr. Brnovich.
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