On Thursday, a three-judge panel of the 11th Circuit Court of Appeals denied a full review panel for the U.S. Treasury Department in a longstanding, Alabama-led lawsuit challenging tax-break restrictions in the federal COVID stimulus bill called the American Rescue Plan Act (ARPA).
Among many stipulations within the ARPA legislation was a requirement that states not use the federal aid "to either directly or indirectly offset a reduction" in net tax revenue. This meant federal funds could not be used to fill the void of state tax cuts. The word "indirectly" gave several state attorneys pause due to its ambiguous nature and possible misinterpretation.
Attorney General Steve Marshall led the 13-state lawsuit against the Administration 21 days after ARPA was enacted. Marshall argued that the "federal tax mandate is an unprecedented and unconstitutional assault on state sovereignty.
In January, U.S. District Judge L. Scott Coogler ruled that Congress exceeded its power in putting the tax mandate on states through the ARPA legislation.
The court ruled that the ARPA tax stipulations were "unascertainable," meaning it provided no guidelines for states to determine if a particular policy would negatively impact state taxes. The Treasury Department appealed to the 11th Circuit, leading to Thursday's decision.
The three-judge panel agreed with the District Court's decision by a vote of 2-1, declining to give a full hearing to the Treasury Department.
The lawsuit claimed that, due to the ambiguous tax requirements in ARPA, states could be stuck holding the bill for any legislation that yields a net decrease in state tax funds in the future, including state tax cuts.
Thursday's decision not to give the Treasury Department a full hearing may not be the last the courts hear arguments on the decision, with a Supreme Court hearing still possible. However, the Sixth Circuit Court offered a similar ruling last year, and the Supreme Court declined to take up the case.
"It is astounding how many times we have had to take legal action against Biden and his administration for their illegal and perilous attempts to circumvent executive power," Marshall said Thursday. "Let me be clear, states have the fundamental authority to determine fiscal policies, and I will continue to defend that authority from the power hungry Biden Administration."
In 2023, the Alabama Legislature passed several tax cuts, including general income tax cuts, tax rebates and a reduction in grocery taxes.
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