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Business Groups Support Missouri in Eighth Circuit ARPA Appeal

Dated July 29, 2021

Citations: Missouri v. Yellen; No. 21-2118; No. 21-cv-00376-HEA

SUMMARY BY TAX ANALYSTS

The U.S. Chamber of Commerce and the National Federation of Independent Business Small Business Legal Center filed an amicus brief with the United States Court of Appeals, Eighth Circuit, in support of the appeal filed by the Missouri attorney general after the U.S. District Court for the Eastern District of Missouri dismissed the state's case against the U.S. Treasury Department regarding the tax mandate provision included in the federal American Rescue Plan Act (P.L. 117-2), arguing that the limitation "poses a grave threat" to federalism and the separation of powers and that it will "hobble" and "stifle" states' efforts to ease tax burdens, thereby limiting economic opportunities.

STATE OF MISSOURI,
Plaintiff-Appellant,
v.
JANET L. YELLEN, ET AL.,
Defendants-Appellees.

UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT

On Appeal from the United States District Court
for the Eastern District of Missouri,
No. 21-cv-00376-HEA

BRIEF OF AMICI CURIAE CHAMBER OF COMMERCE OF THE UNITED STATES & NATIONAL FEDERATION OF INDEPENDENT BUSINESS SMALL BUSINESS LEGAL CENTER

DARYL JOSEFFER
PAUL LETTOW
U.S. CHAMBER LITIGATION CENTER
1615 H Street, NW
Washington, DC 20062
(202) 463-5337
KAREN HARNED
ROB SMITH
NFIB SMALL BUSINESS LEGAL CENTER
1201 F Street, NW #200
Washington, DC 20004
(202) 314-2061

PAUL D. CLEMENT
Counsel of Record
ERIN E. MURPHY
KASDIN M. MITCHELL
LAURA E. WOLK
ELIZABETH HEDGES
KIRKLAND & ELLIS LLP
1301 Pennsylvania Avenue, NW
Washington, DC 20004
(202) 389-5000
paul.clement@kirkland.com

Counsel for Amici Curiae Chamber of Commerce of the United States of America and National Federation of Independent Business Small Business Legal Center

July 21, 2021

CORPORATE DISCLOSURE STATEMENT

The Chamber of Commerce of the United States of America is a nonprofit, tax-exempt organization incorporated in the District of Columbia. The National Federation of Independent Business Small Business Legal Center is a 501(c)(3) public interest law firm and is affiliated with the National Federation of Independent Business, a 501(c)(6) business association. Neither the Chamber of Commerce of the United States of America nor the National Federation of Independent Business has a parent corporation, nor does any publicly held corporation own 10% or more of their stock. No publicly held corporation or its affiliate that is not a party to this case or appearing as amici curiae has a substantial financial interest in the outcome of this litigation by reason of insurance, a franchise agreement, or an indemnity agreement.


TABLE OF CONTENTS

CORPORATE DISCLOSURE STATEMENT

TABLE OF AUTHORITIES

STATEMENT OF INTEREST

INTRODUCTION

ARGUMENT

I. The Tax Mandate Is Unconstitutional

II. Left Standing, The Tax Mandate Will Have Dire Consequences

CONCLUSION

CERTIFICATE OF COMPLIANCE

CERTIFICATE OF SERVICE

TABLE OF AUTHORITIES

Cases

Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 548 U.S. 291 (2006)

Bond v. United States, 564 U.S. 211 (2011)

City of Philadelphia v. Sessions, 280 F. Supp. 3d 579 (E.D. Pa. 2017)

Coyle v. Smith, 221 U.S. 559 (1911)

Dep't of Revenue v. ACF Indus., Inc., 510 U.S. 332 (1994)

Dows v. City of Chicago, 78 U.S. 108 (1870)

Free Enter. Fund v. PCAOB, 561 U.S. 477 (2010)

Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1 (1824)

M'Culloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819)

Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519 (2012)

New York v. United States, 505 U.S. 144 (1992)

Ohio v. Yellen, — F. Supp. 2d —, 2021 WL 2712220 (S.D. Ohio July 1, 2021)

Phelps-Roper v. City of Manchester, 697 F.3d 678 (8th Cir. 2012)

Phelps-Roper v. Nixon, 545 F.3d 685 (8th Cir. 2008)

Plaut v. Spendthrift Farm, Inc., 514 U.S. 211 (1995)

Providence Bank v. Billings, 29 U.S. (4 Pet.) 514 (1830)

South Dakota v. Dole, 483 U.S. 203 (1987)

Steward Mach. Co. v. Davis, 301 U.S. 548 (1937)

Constitutional Provisions

U.S. Const. Amend. XVI

U.S. Const. Art. I, §8

U.S. Const. Art. I, §9

U.S. Const. Art. I, §10

Legislative Materials

Coronavirus State and Local Fiscal Recovery Funds, 86 Fed. Reg. 26,786 (May 17, 2021)

H.B. 1023, 93rd Gen. Assemb., Reg. Sess. (Ark. 2021)

H.B. 114, 156th Gen. Assemb., Reg. Sess. (Ga. 2021)

H.B. 1406, 101st Gen. Assemb., Reg. Sess. (Mo. 2021)

H.B. 227, 2021 Leg., Reg. Sess. (Ala. 2021)

H.B. 279, 67th Leg., Reg. Sess. (Mont. 2021)

H.B. 2960, 58th Leg., Reg. Sess. (Okla. 2021)

H.B. 429, 101st Gen. Assemb., 1st Reg. Sess. (Mo. 2021)1

Pub. L. No. 117-2, §9901

S.B. 1, 55th Leg., 1st Sess. (N.M. 2021)

S.B. 2500, 2021 Leg., Reg. Sess. (N.Y. 2021)

S.B. 496, 442d Gen. Assemb., Reg. Sess. (Md. 2021)

Other Authorities

Alex Sherman, Five Charts That Show How COVID-19 Stopped the U.S. Economy In Its Tracks, CNBC (Mar. 11, 2021), https://cnb.cx/3cZ97O0

Anne Sraders & Lance Lambert, Nearly 100,000 Establishments That Temporarily Shut Down Due to the Pandemic Are Now Out of Business, Fortune (Sept. 28, 2020), https://bit.ly/3t6dpci

Anshu Siripurapu & Jonathan Masters, How COVID-19 Is Harming State and City Budgets, Council on Foreign Relations (Mar. 19, 2021), https://on.cfr.org/3f9vjqm

Comment from Almy, Rep. Susan, Coronavirus State and Local Fiscal Recovery Funds, Regulations.gov (June 29, 2021), https://bit.ly/3Ae135X20

Complaint, Arizona v. Yellen, No. 2:21-cv-00514-DJH (filed Mar. 25, 2021)

Congressional Rsch. Serv., Global Economic Effects of COVID-19 (July 9, 2021), https://bit.ly/3AitAqJ

Erin Huffer & Aravind Boddupalli, The Leisure & Hospitality Sector Has an Employment Crisis — and It Might Be Getting Worse, Urb. Wire (July 20, 2020), https://urbn.is/397ptlz

How the COVID-19 Pandemic is Transforming State Budgets, Urb. Inst. (July 16, 2021), https://urbn.is/3cAJjrj

Jack M. Mintz, Tax Policy and Fiscal Sustainability Post-Covid, BloombergTax.com (Feb. 2, 2021), https://bit.ly/3641G47

Jared Walczak, Four Questions Treasury Must Answer About the State Tax Cut Prohibition in the American Rescue Plan Act, Tax Found. (Mar. 18, 2021), https://bit.ly/3cYu0YB14

Kate Davidson, Covid-19's Hit to State and Local Revenues Is Smaller Than Many Feared, Wall St. J. (Feb. 7, 2021), https://on.wsj.com/3wWBAe4

Linda Gandee, Avon to Receive Almost $4.6 Million From the American Rescue Plan Act of 2021, Cleveland.com (June 14, 2021), https://bit.ly/2TiSwy1

Malea Martin, As Cities Await Finalized American Rescue Plan Act Guidelines, Some Funding Decisions Remain in Limbo, Santa Maria Sun (June 16, 2021), https://bit.ly/3qHcn5S

Michael Ettlinger & Jordan Hensley, Covid-19 Economic Crisis: By State, Univ. of N.H. Carsey Sch. of Pub. Pol'y (June 29, 2021), https://bit.ly/3dBzklI

Nat'l Restaurant Ass'n, 49 States and DC Added Restaurant Jobs in May 2021 (June 24, 2021), https://bit.ly/3hn5jHA

Nat'l Restaurant Ass'n, Restaurant Employment Fell for the Third Consecutive Month (Feb. 5, 2021), https://bit.ly/31b0pG3

Nat'l Restaurant Ass'n, Restaurant Sales Fell to Their Lowest Level Since June (Jan. 15, 2021), https://bit.ly/3d5gVwu

NFIB Res. Ctr., Covid-19 Small Business Survey (16) (Mar. 16, 2021), https://bit.ly/3dv5COz

NFIB Res. Ctr., Covid-19 Small Business Survey (17) (Apr. 28, 2021), https://bit.ly/3ycOcyO

NFIB Res. Ctr., Covid-19 Small Business Survey (18) (June 30, 2021), https://bit.ly/3yMg4KD

Office of Gov. Gavin Newsom, Governor Newsom Signs Legislative Package Providing Urgent Relief to Californians Experiencing Pandemic Hardship (Feb. 23, 2021), https://bit.ly/2Q6wXOU

Office of Gov. Larry Hogan, The RELIEF Act of 2021, https://bit.ly/2O6yoMG

Patrick Gleason, How Senator Joe Manchin's Move To Block Tax Relief in His Own State Costs All U.S. Taxpayers, Forbes (Mar. 16, 2021), https://bit.ly/31vV782

Paul Davidson, Vaccines Could Help Steady Economy; Yet Pandemic Isn't Over, Effects Are Likely to Linger, USA Today (Dec. 31, 2020)

Press Release, President Biden Announces American Rescue Plan, White House (Jan. 20, 2021), https://bit.ly/3f4S5Qe

Stacey Barchenger, States Have Billions of Dollars from the American Rescue Plan. Now They Have to Spend It, NorthJersey.com (May 5, 2021), https://njersy.co/3jvHOi5

State-by-State Job Loss: COVID-19 Continues to Devastate Hotel Industry, Am. Hotel & Lodging Ass'n (Feb. 2021), https://bit.ly/3uG0H47

U.S. Bureau of Labor Statistics, All Employees, Total Nonfarm [PAYEMS], retrieved from FRED, Fed. Rsrv. Bank of St. Louis (July 8, 2021), https://bit.ly/3dPMhbQ

Vanessa Romo et al., Tornadoes Strike Alabama, Georgia Leaving at Least 5 Dead, NPR (Mar. 26, 2021), https://n.pr/2PpDZ1f


STATEMENT OF INTEREST

Founded in 1912, the Chamber of Commerce of the United States of America (the “Chamber”) is the world's largest business federation. It represents approximately 300,000 members and indirectly represents the interests of more than 3 million companies and professional organizations of every size, in every economic sector, and from every region of the country. An important function of the Chamber is to represent the interests of its members by participating as a litigant or amicus curiae in cases involving issues of concern to American businesses, such as this one.

The National Federation of Independent Business (“NFIB”) is the nation's leading small business association. Its membership spans the spectrum of business operations, ranging from sole proprietor enterprises to firms with hundreds of employees. Founded in 1943 as a nonprofit, nonpartisan organization, NFIB's mission is to promote and protect the right of its members to own, operate, and grow their businesses. The NFIB Small Business Legal Center is a nonprofit, public interest law firm established to provide legal resources and be the voice for small businesses in the nation's courts through representation on issues of public interest affecting small businesses. To fulfill its role as the voice for small business, the Legal Center frequently files amicus briefs in cases that will impact small businesses.

Amici have a strong interest in this case, as the tax mandate poses a grave threat both to structural principles of federalism and separation of powers that have well-served the Nation and to the economic vitality of U.S. businesses. Amici are concerned that the tax mandate will hobble States that seek to ease tax burdens on businesses of all sizes and industries that have been substantially harmed at no fault of their own, but instead from government closures and restrictions imposed on them due to the pandemic. The tax mandate will undoubtedly stifle innovation in the States by limiting their options to support economic activity, which are critical to their businesses' economic recovery and the general well-being of businesses and their employees. For these reasons and others described below, amici respectfully urge this Court to reverse the district court's denial of Missouri's motion for a preliminary injunction.1

INTRODUCTION

The novel tax mandate at the heart of this case is unprecedented and unconstitutional. Never in the history of the Republic has the federal government conditioned the receipt of federal funds on a State's surrender of its power to control its own tax policies. It is beyond question that Congress cannot dictate state tax policy directly, and such an intrusion into core matters of state sovereignty is ultra vires, even as a condition on federal funds. Congress has resisted the temptation to impose such a condition for over two centuries not out of self-restraint, but because it lacks the power to do so. And at a bare minimum, Congress cannot coerce States into surrendering such a core aspect of sovereignty with an offer they cannot refuse — a massive federal relief package in the aftermath of a global pandemic ultimately funded by the States' own taxpayers.

In the American Rescue Plan Act of 2021 (“ARPA”), Congress has made $195.3 billion in taxpayer dollars — i.e., money collected from the States' citizens — available to States if and only if States agree not to pass any laws or take any administrative actions that decrease their net revenue, whether that decrease comes through tax credits, rebates, reductions in tax rates, or new or expanded deductions. Pub. L. No. 117-2, §9901(b)(3)(A). And under the recent interim final rule promulgated by the Treasury Department, the net revenue baseline is measured for the next three years against a State's revenues in 2019. See Coronavirus State and Local Fiscal Recovery Funds, 86 Fed. Reg. 26,786, 26,808 (May 17, 2021) (codified at 31 C.F.R. pt. 35). For most States, the massive amount of funds available under ARPA — nearly 20% of state government revenues nationwide — eclipses even the extraordinary volume of Medicaid funding held to be coercive under National Federation of Independent Business v. Sebelius (“NFIB v. Sebelius”), 567 U.S. 519, 581-82, 588 (2012). And the coercion is even more acute here, given that the entire point of ARPA is to help alleviate the effects of a once-in-a-lifetime global pandemic that has left some States and many of their residents in financial ruin. The notion that a State could refuse such a massive amount of federal relief money raised from its own taxpaying citizenry in these extraordinary times is fanciful. In effect, then, Congress has commandeered the tax power of the States — something it plainly lacks the power to do.

The district court's holding that Missouri lacks standing because its “sovereign power to set its own tax policy is not implicated by the ARPA,” Op.10, is wrong as a matter of law and fact. Unless and until this Court enjoins it, the mandate will continue to impinge on Missouri's and other States' sovereignty. It also will imperil their efforts to implement revenue-related measures to foster a healthy business community and promote recovery from the economic devastation caused by COVID-19 — devastation that disproportionately harmed certain industries and carried particularly harsh effects for small businesses. Many States have recently enacted legislation to help businesses, and the economy as a whole, recover. These measures, which include new tax deductions and credits for restaurants and small businesses, reductions in corporate tax rates, and fee waivers for eating and drinking establishments, are designed to jump-start recovery. Under ARPA, however, these measures may subject the States to a Treasury recoupment action if they correspond to a short-term revenue decrease. The threat of such adverse action will constrain State policymaking now and in future legislative sessions. There can be no question that the States, as well as their citizens and the businesses operating within them, are suffering irreparable injury, while any contrary federal interest is minimal, if not entirely ultra vires. The Court should reverse.

ARGUMENT

ARPA offers approximately $195 billion to States to aid the States' and their residents' financial recovery from the COVID-19 pandemic. Like most spending power legislation, the Act expressly enumerates the purposes to which States may put those funds. States may use the money to: (a) “respond to the public health emergency with respect to [COVID-19] or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality”; (b) “respond to workers performing essential work” during the pandemic by providing premium pay or grants; (c) provide government services “to the extent of the reduction” in local revenue “due to [COVID-19] relative to revenues collected in the most recent full fiscal year . . . prior to the emergency”; and (d) “make necessary investments in water, sewer, or broadband infrastructure.” Pub. L. No. 117-2, §9901(c)(1)(A)-(D).

In addition to those conditions, the Act includes a section titled “further restriction” on the “use of funds.” Id. §9901(c)(2) (capitalization altered). One such restriction provides:

A State or territory shall not use the funds provided under this section or transferred pursuant to section 603(c)(4) 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.

Id. §9901(c)(2)(A). If a State violates that prohibition, it must repay the funds in “an amount equal to the amount of funds used in violation” of the Act. Id. §9901(e). The Act also prohibits States from using the funds for “deposit into any pension fund.” Id. §9901(c)(2)(B).

By its plain terms, the tax mandate is breathtakingly broad. As the U.S. District Court for the Southern District of Ohio noted earlier this month in its order enjoining enforcement of the tax mandate against Ohio, “[b]ased on the Tax Mandate's language, the Secretary could deem essentially any reduction in the rate of any one or more state taxes — even if other tax rates were increased — to be a 'change in [tax] laws' that results in an 'indirect[ ] offset [of] a reduction in [Ohio's] net tax revenues.'” Ohio v. Yellen, — F. Supp. 2d —, 2021 WL 2712220, at *15 (S.D. Ohio July 1, 2021) (alterations and emphasis in original) (citation omitted). By prohibiting funds from “indirectly” offsetting a decrease in state revenue, the provision appears to reach any action that effects a reduction in rate, rebate, deduction, or credit, regardless of whether any federal funds were used to finance that tax measure. It also appears to preclude any state official from adopting any pro-taxpayer interpretation of a disputed provision. The mandate even goes so far as to forbid a State to delay the imposition of a tax or tax increase, even as a hardship allowance for the pandemic's crippling financial consequences.

To be sure, shortly before the district court ruled in this case, Treasury purported to limit the scope of the tax mandate by promulgating an interim final rule that allows States to replace revenue reductions with spending cuts in “areas not being replaced by” ARPA money. 86 Fed. Reg. at 26,808. But it is hard to see how Treasury's interpretation can be squared with ARPA's plain text — not to mention the fungible nature of money. In all events, the interim rule ultimately creates more problems than it solves. Among other things, the rule dictates that States may not decrease their net tax revenues relative to their revenues in 2019 — a baseline that implicitly locks in policy choices of past legislatures and governors all the way through 2024. The rule also requires States to provide a detailed accounting of their tax measures to ensure compliance with the mandate. That level of micromanaging a core sovereign function is unprecedented and extreme. See Ohio, 2021 WL 2712220, at *19. The district court's conclusion that, in the face of this unprecedented intrusion into its sovereignty, Missouri failed to even demonstrate standing is erroneous, see Mo. Br. 27-30, and the only proper judicial course is to enjoin the provision.

I. The Tax Mandate Is Unconstitutional.

1. The power to tax or not to tax lies at the absolute core of sovereignty. Misguided taxes spurred the revolution that produced our Republic. Our founding document includes multiple specifications of what federal and state governments can and cannot tax. U.S. Const. Art. I, §8, cl. 1; id. Art. I, §9, cl. 1, 4, 5; id. Art. I, §10, cl. 2. Amendments reallocating the taxing power have had a profound effect on the federal-state balance. See id. Amend. XVI. And our earliest judicial decisions recognize that “the power to tax involves the power to destroy.” M'Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 431 (1819).

It is no surprise, then, that the Supreme Court recognizes that the tax power is “central to state sovereignty,” Dep't of Revenue v. ACF Indus., Inc., 510 U.S. 332, 345 (1994), and that the “power of self government . . . cannot exist distinct from the power of taxation,” Providence Bank v. Billings, 29 U.S. (4 Pet.) 514, 546, 548 (1830). Thus, it has been settled law from the Republic's earliest days that a State “alone” may, “within its own jurisdiction,” “judge and determine how, in what manner, and upon what objects [the tax] power shall be exercised.” Id. at 544. Simply put, it is difficult to conceive of a greater threat to the “integrity, dignity, and residual sovereignty of the States,” Bond v. United States, 564 U.S. 211, 221 (2011), than the loss of their tax power. Indeed, in enjoining the government from enforcing the tax mandate against the State of Ohio, U.S. District Judge Douglas Cole noted that the “power to tax” is a “core State function . . . that has long been recognized as 'indispensable' to the States' very existence.” Ohio, 2021 WL 2712220, at *19 (quoting Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 199 (1824)).2

If anything, that core attribute of state sovereignty has taken on even greater importance in the wake of the Sixteenth Amendment, which empowers the federal government to tax the income of the States' citizenry. See U.S. Const. Amend. XVI. Taxing citizens is a zero-sum game. No matter how many sovereigns tax them, citizens cannot be taxed more than 100%, and they begin avoiding taxable activity at far lower rates. That makes the States' power to set their own tax policy in the shadow of the Sixteenth Amendment critical not only to their ability to sustain their own governments, but also to serve as a check on the federal government's own taxing power. States may not be able to stop the federal government from taxing the income their citizens produce. But at least States can try to alleviate the burden on their citizens by reducing their own reliance on tax revenues. The States' ability to play this safety-valve role is critical to preserving the framers' vision that a system of dual-sovereignty would enhance, rather than threaten, individual liberty. See Bond, 564 U.S. at 221.

Those bedrock tenets of federalism resolve this case. Some matters are simply too close to the core of state sovereignty for the federal government to dictate their terms, even if those terms are framed as conditions. See Coyle v. Smith, 221 U.S. 559, 577 (1911) (holding unconstitutional an effort to prevent Oklahoma from relocating its capitol as a condition of its admission to the Union). Just as the federal government may not decide the location of a State capitol (and a State would surely have standing to object), the federal government may not decide whether a State should lower or raise taxes. That Congress purports to do so here as a condition on the receipt of federal funds (or, more aptly, federal tax revenues collected from the States' citizens) makes no difference. As Coyle recognizes, some conditions are per se ultra vires.

That is clearly true of this unprecedented effort to dictate state tax policy. If the power to tax is indeed the power to destroy, then the federal government has no more business dictating what state governments may and may not tax than States have taxing federal instrumentalities. Indeed, where the Constitution puts certain revenue sources off-limits to States, it does so directly, as with Article I, Section 10's express prohibition on state taxes on imports and exports without Congress' consent. The idea that Congress can add to Article I, Section 10 as a condition of federal funding should be a non-starter. That likely explains why Congress has never taken this extraordinary step. Congress' “prolonged reticence would be amazing if such interference were not understood to be constitutionally proscribed.” Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 230 (1995); see also Free Enter. Fund v. PCAOB, 561 U.S. 477, 505 (2010) (“Perhaps the most telling indication of the severe constitutional problem . . . is the lack of historical precedent.”).

The intrusive effects of the tax mandate only became more apparent when the Secretary promulgated its interim final rule purporting to add post hoc clarity to the statute. See 86 Fed. Reg. 26,786. Far from clarifying or narrowing the sweep of the tax mandate, the rule only highlights the extent of the tax mandate's intrusion on a core area of the States' sovereignty. The rule requires each State to perform a multi-step assessment every year of how the amount of funds received under ARPA compares to any reductions in the State's tax revenue. Each State must also “provide to the Secretary periodic reports providing detailed accounting of the uses of funds, all modifications to a State or Territory's tax revenue sources, and such other information as the Secretary may require.” Id. at 26,821 (emphasis added). And “the Secretary may request other additional information as may be necessary or appropriate.” Id. The rule thus confirms that the tax mandate gives the federal government unprecedented authority to micromanage the taxing power of the States.

The burdensome system of “accounting” is not the only way in which the interim final rule exacerbates the constitutional problems with the tax mandate. The rule requires States to measure a “reduction” in net tax revenue by reference to the 2019 fiscal year. Although Treasury justifies this requirement by describing 2019 as the “last full fiscal year prior to the COVID-19 public health emergency,” 86 Fed. Reg. at 26,800, it is also necessarily a baseline that reflects the policy preferences of past legislatures and governors, and not the will of the people as reflected in intervening elections. Moreover, the rule does not take account of the many things that could transpire between 2021 and 2024 that make freezing in amber the 2019 fiscal year an especially burdensome and intrusive requirement. And tying recoupment to the year 2019 forces States to look to the past rather than the future in gauging their policy priorities. Thus, even if a State projects that a tax cut will increase its revenue in the long run, the State must weigh that benefit against the risk that one year's revenue will dip below the 2019 level and subject the State to a potential recoupment action. In short, the tax mandate and the interim final rule install Treasury in a supervisory capacity over the States that is foreign to our system of federalism. See Billings, 29 U.S. at 544.

2. On top of all that, the mandate suffers from the additional infirmity of being impermissibly coercive. As the Supreme Court reaffirmed in NFIB v. Sebelius, when Congress offers federal funds to States on the condition that they enact or refrain from enacting certain policies, the condition is permissible only if the offer is voluntary not just in theory, but in fact. See 567 U.S. at 577. This remains true regardless of whether the condition is framed as a grant or a withdrawal of funds. In either instance, the limitation is critical because, “[n]o matter how powerful the federal interest involved, the Constitution simply does not give Congress the authority to require the States to regulate.” New York v. United States, 505 U.S. 144, 178 (1992). By circumventing that rule, efforts to use the power of the federal purse to coerce States to do Congress' bidding “undermine the status of the States as independent sovereigns in our federal system.” NFIB v. Sebelius, 567 U.S. at 577. It is thus incumbent on courts to carefully “scrutinize” spending legislation to ensure that Congress is “not using financial inducements to exert a 'power akin to undue influence'” on the States. Id. (quoting Steward Mach. Co. v. Davis, 301 U.S. 548, 590 (1937)). Federal “pressure turns into compulsion” when States no longer have a “legitimate choice whether to accept the federal conditions in exchange for federal funds.” Id. at 577, 643.

There can be no serious question that ARPA is coercive by that standard. In NFIB v. Sebelius, the threatened “loss of over 10 percent of a State's overall budget” was “surely beyond” the constitutional line. Id. at 582, 585. Here, the $195 billion available to States and the District of Columbia eclipses that by a wide margin. It is equivalent to nearly 14% of Missouri's annual general-revenue expenditures from the last two fiscal years. Mo. Br. 4. And it is equivalent to a whopping 20% of the annual state tax collections of state governments.3 For some States, the impact of the available funds is even greater — equivalent, for instance, to about 40% of Arizona's general fund budget, Complaint ¶11, Arizona v. Yellen, No. 2:21-cv-00514-DJH (filed Mar. 25, 2021), and nearly 30% of Mississippi's 2021 budget.4 As in NFIB v. Sebelius, the sheer amount of money at issue “leaves the States with no real option but to acquiesce.” 567 U.S. at 582.

Numbers alone do not tell the whole story. Over the past year, the COVID-19 pandemic has forced the whole world to endure extreme economic hardship. Entire industries shut down for months on end, while others operated with reduced hours and customer capacities, all under the continued pressure of supply chain constraints. Thousands of Americans lost their jobs, had to forgo higher education, and have been crushed by medical bills related to COVID-19 treatments.

Amici have witnessed firsthand the economic devastation of the pandemic. Small businesses, in particular, have faced unprecedented hardship.5 In surveys of small business owners, 81% of participants reported losing sales opportunities because of a labor shortage.6 More than half had employees take pandemic-related sick leave or family leave; 87% of those businesses reported at least some of that leave was paid leave.7 The hospitality industry was also ravaged: At the beginning of this year, foodservice sales were down $240 billion from expected levels in 2020.8 Nearly a third of all restaurant and hospitality workers lost their jobs in the first few months of the pandemic,9 and many have yet to return.10 More than 100,000 businesses of all stripes have permanently shuttered their doors,11 and the country has lost more jobs since February 2020 than were lost during the Great Recession of December 2007 to June 2009.12

These economic hardships not only impact States' residents, but have a direct impact on States' budgets, many of which face dwindling tax revenues alongside rising healthcare costs and record unemployment claims.13 Indeed, the pandemic is projected to slash state revenues by $300 billion through 2022 — significantly more than the amount of money offered under ARPA.14 Under normal circumstances, to refuse such a massive influx of tax dollars would be unthinkable; in these extraordinary times, to do so would border on unconscionable given that State's taxpayers will be the ultimate source of the funds whether or not a State accepts the funds. The tax mandate thus should be seen — and rejected — as exactly what it is: an unconstitutional effort to strip States of their core sovereign right to determine their own tax policy.

II. Left Standing, The Tax Mandate Will Have Dire Consequences.

The tax mandate threatens immediate and drastic consequences that readily justify a preliminary injunction. The mandate's ostensible ban on any tax measure that reduces a State's net revenues creates ongoing hardships for state and local governments, as well as businesses and citizens who rely on tax relief or other changes in tax policy to promote economic growth — especially in times like these. The Supreme Court has long recognized that any “delay” in a State's ability to enforce its tax policies “may derange the operations of government,” causing “serious detriment to the public.” Dows v. City of Chicago, 78 U.S. 108, 110 (1870). That is as true today as it was 150 years ago. If anything, the threat is even more pronounced at this critical juncture in our Nation's history because many of the policies States are pursuing or wish to pursue are designed to reduce the financial strain of the pandemic within their respective borders. Indeed, many State legislatures recently passed measures specifically aimed at reducing tax burdens on businesses; many of these laws were designed to bolster small businesses and industries that have suffered substantial harm as the result of government-mandated closures and other restrictions.The ability to reduce the tax burdens of these businesses is a critical tool for the States in their efforts to restore economic vitality within their borders,15 but to the extent those measures or others like them contribute to a reduction in net tax revenue, the States' ARPA funds may be in jeopardy.

For example, Missouri recently considered tax credits for businesses that were shut down by local government orders over the past year.16 New Mexico recently passed a bill establishing a gross receipts tax deduction for food and beverage establishments, which were hit particularly hard by pandemic-related closures and restrictions.17 Maryland recently passed its own sweeping COVID-19 relief bill that, among other things, supports small businesses with a sales tax credit of up to $3,000 per month — a nearly $200 million commitment.18 In May, Oklahoma reduced its corporate income tax rate by 2%.19 And California's recent relief law includes $2.1 billion for grants to small businesses impacted by the pandemic, as well as fee waivers for the nearly 60,000 restaurants and bars licensed throughout the State.20

The States' efforts also provide critical aid to individuals. New Mexico recently passed a $600 income tax rebate to families and individuals who receive the State's Working Families tax credit.21 Maryland's relief law provides $178 million in direct stimulus relief to 400,000 low-income residents.22 In addition, many States have recently enacted tax measures that have nothing to do with COVID-19 relief, but that are manifestly in the public interest.For instance, in its most recent legislative session, Missouri extended tax credits for families who adopt a child out of foster care.23 Georgia did the same.24 Alabama established tax deductions for residents who purchase storm shelters to protect their families from tornadoes.25 Montana increased its current education tax credit for families.26 And Arkansas enacted an exemption from taxation for sales at certain school events.27 Given its most natural construction, the tax mandate may implicate all of these measures, and more.

To be sure, the federal government has tried to assure States that the mandate need not be read so broadly, and has purported to fix any ambiguity in the statutory language through the interim final rule. But state and local officials remain unsure as to how they may permissibly exercise their own sovereign tax powers without risking a federal objection and recoupment action. In a public comment submitted to the Treasury in late June, leadership on New Hampshire's House Ways and Means Committee indicated that the committee is “struggling with the implications of the tax provisions in ARPA.”28 The State faces particular confusion over the interaction of New Hampshire's “distinctive version of the corporate income tax” with the rule's carve-out for “income tax changes . . . that simply conform with recent changes in Federal law.”29 And “questions about major timing issues” remain regarding the measurement and collection of recoupment amounts.30 The Speaker of the House in Iowa has expressed similar hesitation, remarking that the State is being “cautious” with its policies to ensure that it is “not using” ARPA funds “in a way they're not intended.”31 And in California, a local regulator expressed his confusion over ARPA, observing, “When we first got the ARPA, we were told it was going to be, 'You can use it for whatever you want. . . . And then when we got the guidance we realized that that's not really the case.”32 The local mayor was similarly confused, declaring that the interim rule “unfortunately” created “more confusion” “instead of clarity.”33 Indeed, some governments have needed to enlist additional resources simply to try to interpret how they can spend the money. In Ohio, local administrators told reporters last month that they were “waiting for a couple of law firms to come out with their interpretations” of the Treasury guidelines and that they were “expecting some seminars on the topic.”34

This lack of clarity alone is a fatal problem, as Congress must impose any conditions “unambiguously[,] enabl[ing] the States to [be] cognizant of the consequences of their participation.” South Dakota v. Dole, 483 U.S. 203, 207 (1987); see also Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 548 U.S. 291, 296 (2006) (requiring “clear notice” of conditions); Ohio, 2021 WL 2712220, at *8-9 (finding ARPA's text violated the Spending Clause because it is ambiguous). But even setting aside the ambiguity problem — which, far from curing, the interim rule only compounds — States do not have time to wait for Treasury to engage in trial and error over the meaning of a statute intruding so deeply on a State's prerogatives. States are confronted with pressing public policy issues now. For example, Alabama's storm-shelter law has taken on increased importance after a tornado devastated part of the State earlier this year.35 And New York's new “return-to-work” tax credit of $5,000 per new employee for restaurant owners seeks to directly address the severe staffing shortage in the restaurant industry.36 These States and many others need a clear understanding of what limits the federal government has purported to put on their exercise of the sovereign prerogative to reduce taxes.

Given the pressing fiscal realities facing the States and their need to flexibly and rapidly make policy in response, a preliminary injunction against enforcement of the tax mandate is necessary and appropriate. It is difficult to see what legitimate interest the federal government has in prohibiting States from lowering the tax burden on their residents, businesses, and entrepreneurs — at precisely the time when they need relief most. “Congress may not impose conditions unrelated to the federal interest in enacting spending legislation.” Ohio, 2021 WL 2712220, at *11 (internal quotation marks and citation omitted). And “it is always in the public interest to protect constitutional rights.” Phelps-Roper v. Nixon, 545 F.3d 685, 690 (8th Cir. 2008), overruled on other grounds, Phelps-Roper v. City of Manchester, 697 F.3d 678 (8th Cir. 2012). Indeed, “issuing the requested injunction will promote the public interest” because “the limitations on Congress's ability to use its Spending Clause authority to make funding offers to the States are designed to protect this country's dual-sovereign structure, which in turn is meant to promote individual liberty.” Ohio, 2021 WL 2712220, at *21.

But even assuming some countervailing federal interest may exist, the balance of equities plainly favors an injunction. The tax mandate was an eleventh-hour addition to the bill, reflecting little legislative forethought and no formal legislative history.37 Congress did not even bother to explain why it chose to rush in where two centuries of previous Congresses feared to tread. The whole point of ARPA is to provide economic relief to critical sectors of American society that were hit especially hard by the pandemic.38 Tax relief is an obvious means of achieving that policy objective, yet Congress placed it off limits to the States. Cf. City of Philadelphia v. Sessions, 280 F. Supp. 3d 579, 657 (E.D. Pa. 2017) (finding it meaningful that requiring the city to forgo funds would prevent the city from addressing the opioid epidemic, which the federal government had described as “a major public health crisis”). In short, even assuming there are some equities on the other side of the ledger, the balance is not close.

CONCLUSION

This Court should reverse.

Respectfully submitted,

DARYL JOSEFFER
PAUL LETTOW
U.S. CHAMBER LITIGATION CENTER
1615 H Street, NW Washington, DC 20062 (202) 463-5337
KAREN HARNED
ROB SMITH
NFIB SMALL BUSINESS LEGAL CENTER
1201 F Street, NW #200 Washington, DC 20004 (202) 314-2061

PAUL D. CLEMENT
Counsel of Record
ERIN E. MURPHY
KASDIN M. MITCHELL
LAURA E. WOLK
ELIZABETH HEDGES
KIRKLAND & ELLIS LLP
1301 Pennsylvania Avenue, NW
Washington, DC 20004
(202) 389-5000
paul.clement@kirkland.com

Counsel for Amici Curiae Chamber of Commerce of the United States of America and National Federation of Independent Business Small Business Legal Center


July 22, 2021

Mr. Paul D. Clement
KIRKLAND & ELLIS
1301 Pennsylvania Avenue, N.W.
Washington, DC 20004

RE: 21-2118 State of Missouri v. Janet Yellen, et al

Dear Counsel:

The amicus curiae brief of the Chamber of Commerce of the United States of America and National Federation of Independent Business Small Business Legal Center has been filed. If you have not already done so, please complete and file an Appearance form. You can access the Appearance Form at www.ca8.uscourts.gov/all-forms.

Please note that Federal Rule of Appellate Procedure 29(g) provides that an amicus may only present oral argument by leave of court. If you wish to present oral argument, you need to submit a motion. Please note that if permission to present oral argument is granted, the court's usual practice is that the time granted to the amicus will be deducted from the time allotted to the party the amicus supports. You may wish to discuss this with the other attorneys before you submit your motion.

Michael E. Gans
Clerk of Court

Enclosure(s)

cc:
Mr. Stephen Ehrlich
Mr. Drew C. Ensign
Ms. Karen R. Harned
Elizabeth Hedges
Mr. Joseph Henchman
Mr. Daryl Joseffer
Ms. Alisa Beth Klein
Mr. Paul Lettow
Ms. Kasdin Miller Mitchell
Ms. Erin Murphy
Mr. Brian David Netter
Mr. Charles E.T. Roberts
Mr. Dean John Sauer
Mr. Justin D. Smith
Mr. Rob Smith
Mr. Mark B. Stern
Mr. Michael E. Talent
Mr. Daniel Winik
Ms. Laura Wolk

FOOTNOTES

1No party or counsel for any party authored this brief in whole or in part, and no one other than the amici, their members, or their counsel made a monetary contribution intended to fund the preparation or submission of this brief. The parties have consented to the filing of this amicus brief.

2By contrast, the district court in this case gave short shrift to Missouri's sovereignty argument, doing little more than summarizing the government's position before stating in conclusory fashion that “[t]he Missouri legislature is free to propose and pass tax cuts as it sees fit.” Op.10.

3Jared Walczak, Four Questions Treasury Must Answer About the State Tax Cut Prohibition in the American Rescue Plan Act, Tax Found. (Mar. 18, 2021), https://bit.ly/3cYu0YB.

4How the COVID-19 Pandemic is Transforming State Budgets, Urb. Inst. (July 16, 2021), https://urbn.is/3cAJjrj.

5NFIB Res. Ctr., Covid-19 Small Business Survey (16) at 9 (Mar. 16, 2021), https://bit.ly/3dv5COz.

6NFIB Res. Ctr., Covid-19 Small Business Survey (18) at 10 (June 30, 2021), https://bit.ly/3yMg4KD.

7NFIB Res. Ctr., Covid-19 Small Business Survey (17) at 8-9 (Apr. 28, 2021), https://bit.ly/3ycOcyO.

8 See Nat'l Restaurant Ass'n, Restaurant Sales Fell to Their Lowest Level Since June (Jan. 15, 2021), https://bit.ly/3d5gVwu; see also Alex Sherman, Five Charts That Show How COVID-19 Stopped the U.S. Economy In Its Tracks, CNBC (Mar. 11, 2021), https://cnb.cx/3cZ97O0.

9Erin Huffer & Aravind Boddupalli, The Leisure & Hospitality Sector Has an Employment Crisis — and It Might Be Getting Worse, Urb. Wire (July 20, 2020), https://urbn.is/397ptlz.

10 See Nat'l Restaurant Ass'n, 49 States and DC Added Restaurant Jobs in May 2021 (June 24, 2021), https://bit.ly/3hn5jHA (restaurant employment in all but four states remains below its pre-pandemic level); Nat'l Restaurant Ass'n, Restaurant Employment Fell for the Third Consecutive Month (Feb. 5, 2021), https://bit.ly/31b0pG3 (nearly 450,000 restaurant jobs lost in the three months preceding February 2021); State-by-State Job Loss: COVID-19 Continues to Devastate Hotel Industry, Am. Hotel & Lodging Ass'n (Feb. 2021), https://bit.ly/3uG0H47 (hospitality industry unemployment rate 300% higher than rest of economy); Michael Ettlinger & Jordan Hensley, Covid-19 Economic Crisis: By State, Univ. of N.H. Carsey Sch. of Pub. Pol'y (June 29, 2021), https://bit.ly/3dBzklI (nationwide employment in the accommodation and food services industry is down 13.9% since last year).

11Anne Sraders & Lance Lambert, Nearly 100,000 Establishments That Temporarily Shut Down Due to the Pandemic Are Now Out of Business, Fortune (Sept. 28, 2020), https://bit.ly/3t6dpci; Paul Davidson, Vaccines Could Help Steady Economy; Yet Pandemic Isn't Over, Effects Are Likely to Linger, USA Today at 3B (Dec. 31, 2020).

12Michael Ettlinger & Jordan Hensley, supra n.10; see also Congressional Rsch. Serv., Global Economic Effects of COVID-19 at Fig. 19 (July 9, 2021), https://bit.ly/3AitAqJ (in none of sixteen measured sectors has the number of jobs lost in April 2020 been fully recovered); U.S. Bureau of Labor Statistics, All Employees, Total Nonfarm [PAYEMS], retrieved from FRED, Fed. Rsrv. Bank of St. Louis (July 8, 2021), https://bit.ly/3dPMhbQ (total nonfarm employment in the United States is still more than 6.7 million jobs below its February 2020 level).

13See Anshu Siripurapu & Jonathan Masters, How COVID-19 Is Harming State and City Budgets, Council on Foreign Relations (Mar. 19, 2021), https://on.cfr.org/3f9vjqm.

14See Kate Davidson, Covid-19's Hit to State and Local Revenues Is Smaller Than Many Feared, Wall St. J. (Feb. 7, 2021), https://on.wsj.com/3wWBAe4.

15See Jack M. Mintz, Tax Policy and Fiscal Sustainability Post-Covid, BloombergTax.com (Feb. 2, 2021), https://bit.ly/3641G47 (noting that “[c]urrent tax policy is supportive of households and businesses through deferrals or tax reductions as governments continue to deal with health restrictions,” and a “first priority is to support private investment and improve productivity with corporate and personal tax rate reductions”).

16H.B. 1406, 101st Gen. Assemb., Reg. Sess. (Mo. 2021).

17S.B. 1, 55th Leg., 1st Sess. (N.M. 2021).

18S.B. 496, 442d Gen. Assemb., Reg. Sess. (Md. 2021).

19H.B. 2960, 58th Leg., Reg. Sess. (Okla. 2021).

20See Office of Gov. Gavin Newsom, Governor Newsom Signs Legislative Package Providing Urgent Relief to Californians Experiencing Pandemic Hardship (Feb. 23, 2021), https://bit.ly/2Q6wXOU.

21S.B. 1, 55th Leg., 1st Sess. (N.M. 2021).

22See Office of Gov. Larry Hogan, The RELIEF Act of 2021, https://bit.ly/2O6yoMG.

23H.B. 429, 101st Gen. Assemb., 1st Reg. Sess. (Mo. 2021).

24See H.B. 114, 156th Gen. Assemb., Reg. Sess. (Ga. 2021).

25 See H.B. 227, 2021 Leg., Reg. Sess. (Ala. 2021).

26See H.B. 279, 67th Leg., Reg. Sess. (Mont. 2021).

27H.B. 1023, 93rd Gen. Assemb., Reg. Sess. (Ark. 2021).

28Comment from Almy, Rep. Susan, Coronavirus State and Local Fiscal Recovery Funds, Regulations.gov (June 29, 2021), https://bit.ly/3Ae135X; 86 Fed. Reg. at 26,808.

2986 Fed. Reg. at 26,808.

30Comment from Almy, Rep. Susan, supra n.28.

31Stacey Barchenger, States Have Billions of Dollars from the American Rescue Plan. Now They Have to Spend It, NorthJersey.com (May 5, 2021), https://njersy.co/3jvHOi5.

32Malea Martin, As Cities Await Finalized American Rescue Plan Act Guidelines, Some Funding Decisions Remain in Limbo, Santa Maria Sun (June 16, 2021), https://bit.ly/3qHcn5S.

Id.

34Linda Gandee, Avon to Receive Almost $4.6 Million From the American Rescue Plan Act of 2021, Cleveland.com (June 14, 2021), https://bit.ly/2TiSwy1.

35See Vanessa Romo et al., Tornadoes Strike Alabama, Georgia Leaving at Least 5 Dead, NPR (Mar. 26, 2021), https://n.pr/2PpDZ1f.

36S.B. 2500, 2021 Leg., Reg. Sess. (N.Y. 2021).

37See Patrick Gleason, How Senator Joe Manchin's Move To Block Tax Relief in His Own State Costs All U.S. Taxpayers, Forbes (Mar. 16, 2021), https://bit.ly/31vV782.

38See Pub. L. No. 117-2, §9901(c)(1)(A); Press Release, President Biden Announces American Rescue Plan, White House (Jan. 20, 2021), https://bit.ly/3f4S5Qe.

END FOOTNOTES

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