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Federal Government Responds to Ohio's Suit Over Tax Offset Provision 

Posted on Apr. 21, 2021

Ohio lacks standing to challenge a provision in the recently enacted federal COVID-19 relief law that restricts states from using federal aid to offset reductions in net tax revenue, according to the Justice Department

In an April 16 opposition brief to Ohio's motion for preliminary injunction, the federal government argued in Ohio v. Yellen that the state's motion "suffers from multiple jurisdictional defects and rests on a fundamental misunderstanding of both the challenged statute and the governing law."

Ohio's motion for preliminary injunction, filed March 17 by state Attorney General Dave Yost (R) in the U.S. District Court for the Southern District of Ohio, argued that Congress exceeded its authority by requiring states to choose between accepting stimulus funds or keeping their sovereign authority to reduce taxes. 

The motion seeks to block the provision’s enforcement, at least as applied to Ohio.

Noting in its opposition brief that “in seeking a preliminary injunction, Ohio argues that this provision is unconstitutionally ‘coercive’ because it would prevent the State from enacting tax cuts,” the federal government argued, "As an initial matter, Ohio lacks Article III standing because it has not enacted any tax cut, let alone shown that any hypothetical tax cut will decrease net tax revenue or that the State plans or intends to use Rescue Plan funds to offset that theoretical reduction."

"Because Ohio has not alleged any intention to use the federal funds in a way not permitted under the Act, it lacks standing to challenge the offset provision,” the brief says.

Any injunctive relief granted should apply only to Ohio, according to the brief.

Ohio is among several states seeking to prevent the Treasury Department from enforcing a provision of the American Rescue Plan Act of 2021 (P.L. 117-2) that was added to the bill by Senate Democrats.

The provision, found in section 9901 of the act, restricts federal aid from being used to “either directly or indirectly offset a reduction in the net tax revenue of such state or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.”

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