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Another Federal Court Strikes Down Ban on Using ARPA Funds for Tax Cuts

Ruth Singleton
Published Date:
Apr 20, 2022

iStock-509736328 Gavel Judge Case Court Legal Law Justice

A federal district court in Texas has struck down a provision in the American Rescue Plan Act (ARPA) that prohibits states from using funds received under that legislation to reduce state taxes, Accounting Today reported, noting that it is the third consecutive ruling to overturn the provision.

The provision at issue bars states from using ARPA funds “to either directly or indirectly offset a reduction in the net tax revenue … resulting from a change in law, regulation, or administrative interpretation … that reduces any tax.” The law empowers the Treasury Department to recoup any funds spent in violation of the tax cut ban.

According to the New York Times, Democrats in Congress added the language into the ARPA legislation after several senators from the party’s moderate wing expressed concern that some states would  use the emergency relief money to subsidize tax cuts. 

The recent ruling permanently bars the Treasury Department from enforcing the ban against Texas, Louisiana and Mississippi. In his ruling, District Judge Matthew Kacsmaryk held that Congress cannot order states to waive a sovereign power through “a conditional offer a state cannot refuse.” He explained, “Although plaintiffs have not been notified of any recoupment of ARPA funds, the court judges the alleged coercion here at the time the states must choose whether to surrender their sovereignty or forgo billions of dollars in federal funds.”

Last July, a federal court in Ohio struck down the provision, enjoining its enforcement in that state. Last September, a Kentucky federal court struck down the ban as applied to Kentucky and Tennessee. And last December, a federal court in Alabama struck down the provision, enjoined Treasury from enforcing the provision against Alabama, Arkansas, Alaska, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, Utah and West Virginia. 

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