Missouri is getting by with a little help from friends in its lawsuit over a provision in the recently adopted federal COVID-19 relief act that restricts states from using the aid it provides to offset reductions in net tax revenue.
The case, which was dismissed in May by the U.S. District Court for the Eastern District of Missouri on grounds that the state lacks standing and the challenge is not yet ripe, is on appeal to the United States Court of Appeals, Eighth Circuit.
Support for Missouri's appeal has come in the form of amicus briefs filed July 21 — one by the National Taxpayers Union Foundation (NTUF) and the other by the U.S. Chamber of Commerce and the National Federation of Independent Business. A brief has also been filed by 19 states, including Arizona, Kentucky, Ohio, Tennessee, Texas, and West Virginia — all of which have filed their own lawsuits against the federal government over the provision.
At issue is a provision in section 9901 of the American Rescue Plan Act (P.L. 117-2) that restricts federal aid from being used by a state or territory 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.” States that violate the provision are required to repay the funds.
Missouri Attorney General Eric Schmitt (R) argued in his July 14 appeal brief that the lower court erred when it dismissed the state’s motion to block the provision’s enforcement. He also argued that the case is ripe because Treasury “will enforce a broad interpretation” of the provision, and he asked the Eighth Circuit to reverse the decision and enter a preliminary injunction blocking the federal government from enforcing such an interpretation.
In its brief, NTUF — a conservative group that advocates for principles of limited government, simple taxation, and transparency — says the district court correctly observed “that the provision is capable of multiple meanings” but erred “in evaluating standing and ripeness only under the narrowest interpretation of the provision.” The foundation argues that dismissing the case on grounds of standing or ripeness is “unsupported by precedent and will chill permissible conduct by state governments.”
The U.S. Chamber of Commerce and the NFIB say in their brief that they 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.” They 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,” according to the brief.
The chamber and the NFIB also argue that the district court’s decision that Missouri lacks standing “is wrong as a matter of law and fact,” and unless the appeals court enjoins it, “the mandate will continue to impinge on Missouri’s and other states’ sovereignty.”
The multistate brief also notes a “compelling interest in ensuring that states can challenge federal statutes which unconstitutionally infringe on their sovereign rights and violate the federal principles of the Constitution,” and they “have a strong interest in being able to enact their own tax policy without federal interference.” The brief argues that the Missouri district court “committed three fundamental errors in holding Missouri lacked Article III standing,” including that it relied entirely on enforcement of the provision “as the only source of Missouri’s injury-in-fact,” it “wrongly concluded that Missouri had no constitutional interest in ARPA funds and no reason to fear enforcement” of the provision, and it failed to consider the costs the state faces from the provision.
The states’ brief further argues that the appeals court should follow the reasoning of the courts in West Virginia v. Department of Treasury and in Ohio v. Yellen, which held that states have standing to challenge the constitutionality of the provision.