Tax mandate under ARPA overruled on appeal

A federal tax mandate has been shot down by the 11th U.S. Circuit Court of Appeals.

The appellate court ruled a tax mandate tucked into the American Rescue Plan Act that would have prohibited states from using federal funds under the law to “either directly or indirectly” offset any tax decreases or delays in tax increases was unconstitutional.

The court rendered a unanimous decision, granting a permanent injunction against the mandate. Under the ruling, according to a release, the federal government is barred from enforcing the tax mandate against New Hampshire.

“The ARPA tax mandate was an improper and unconstitutional intrusion on the rights of New Hampshire’s elected policymakers to make decisions regarding state tax policy,” New Hampshire Attorney General John Formella said in the release.

Under the 2020 law, which was a $1.9 billion aid package created to mitigate the economic and public health impact caused by the COVID-19 pandemic, states would have been required to prove their compliance with the mandate and other requirements in order to receive ARPA funds. If states didn’t certify, the U.S. Treasury was authorized to seek a return of the federal dollars.

U.S. Circuit Judge Andrew L. Brasher, in his opinion, wrote the “Constitution doesn’t grant the federal government the authority to require states to enact the laws or policies of Congress.” However, he said the law does grant Congress “the power of the purse.”

Brasher went on to write that the federal government “can’t control state conduct directly,” but Congress “often uses the power of tax and spend as a work-around” in an effort to give federal funds in exchange for establishing certain programs or enacting laws.”

The appeal, Brasher wrote, was about the limits of that authority.

“The offset provision in ARPA funds “to either directly or indirectly offset a reduction in [their] net tax revenue” that would result from a change in law that “reduces any tax,” Brasher wrote.

The states argued that the tax mandate written into the law “exceeded Congress’s authority under the Constitution,” Brasher continued.

New Hampshire joined the lawsuit with Alabama, Alaska, Arkansas, Florida, Iowa, Kansas, Montana, Oklahoma, South Carolina, South Dakota, Utah and West Virginia.

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