Anchorage, Alaska (KINY) – The U.S. Circuit Court of Appeals for the 11th Circuit upheld a permanent injunction from a lower court in favor of the states on Friday morning.
It found that the equalization provision in the American Rescue Plan Act is unconstitutional under the Spending Clause because it prohibits states from using rescue plan funds to directly or indirectly offset a reduction in their net tax revenues.
It also found that the provision violated states’ sovereignty.
The law provided $195.3 billion in payments to each of the fifty states and the District of Columbia to respond to the health and economic emergency of COVID-19.
However, the law also included restrictions on the states receiving the funds.
In 2021, Alaska Attorney General Treg Taylor joined a bipartisan coalition of 13 states to file suit to protect the states’ established and critical tax agency — in this case, the power to reduce state taxes on its residents .
This offsetting provision prohibits states from using funds from the bailout plan “to offset, directly or indirectly, a cut [their] Net tax revenue” resulting from a change in law that “reduces every tax”.
The lawsuit — led by West Virginia attorney general Patrick Morrisey, Alabama attorney general Steve Marshall, and Arkansas attorney general Leslie Rutledge — argues that federal Treasury Department officials cannot force states to relinquish control of their tax agency in return for urgently needed economic assistance related to COVID -19.
The states have particular problems with a provision in the stimulus law that the coalition is calling “one of the most egregious federal power grabs in the country’s history.”
“Today’s ruling by the 11th Federal Court underscores the importance of ongoing state efforts to protect states’ sovereign rights in the federal arena. This case reaffirms that federal agencies like the US Treasury Department cannot use generic delegation language to operate outside of statutory authority on important issues,” said Alaska Attorney General Treg Taylor. “The spending clause requires Congress to speak clearly so states can make informed decisions about federal funding terms. My office appreciates the diligent efforts of the Attorneys General in West Virginia and Alabama in maintaining the briefs.”
Alaska Tax Commissioner Adam Crum commented on the confirmed opinion. “This 11th Court ruling is a win for the rights and sovereignty of states and affirms that taxing authority is essential to state governments and is not subject to unconstitutional provisions that violate the expenditure clause,” Crum said.
Attorneys general had argued that the mandate could be used to reclaim part of a state’s stimulus allocation. This creates an unacceptable deterrent effect on the willingness of state legislators to reduce the tax burden on their citizens.
The lawsuit contains charges of unconstitutional exercise of federal authority, specifically violations of the 10th Amendment, the Contingent Spending Doctrine and the Anti-Commandeering Doctrine.
Alaska joined the lawsuit led by West Virginia, Alabama and Arkansas with support from Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota and Utah.
Read the 11th Circuit Opinion here.