Menu
Tax Notes logo

Wisconsin Legislature Seeks to Join Federal Aid Restriction Lawsuit

Posted on May 18, 2021

Wisconsin’s Republican-controlled Legislature is seeking to join a multistate lawsuit challenging a provision of the recently adopted federal COVID-19 relief law that restricts states from using federal funds to offset reductions in net tax revenue.

In its May 13 motion to intervene as a plaintiff in the lawsuit, the Wisconsin Legislature argues that "if it is not permitted to intervene, Wisconsin might be deprived of the benefits of any injunction this Court grants against defendants’ unconstitutional action.”

The provision, in section 9901 of the American Rescue Plan Act of 2021 (P.L. 117-2), 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.”

The lawsuit — filed March 31 in the U.S. District Court for the Northern District of Alabama by attorneys general in West Virginia, Alabama, Arkansas, Alaska, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, and Utah — argues that the provision is an unconstitutional exercise of federal power that violates the 10th Amendment and the anti-commandeering doctrine. The states are seeking to bar the Treasury Department from enforcing it.

Wisconsin's motion argues that the provision is “impermissibly vague, not informing the Legislature what taxes (if any) it can cut, which harms the sovereign dignity of the state of Wisconsin and its Legislature.” It asks for a preliminary injunction to prevent Treasury from enforcing it against “Wisconsin, the Legislature, the state’s citizens and residents, and any of its agencies or officials or employees, and to take such actions as are necessary and proper to remedy violations deriving from any such actual or attempted enforcement.”

In a May 7 response to the states' motion for preliminary injunction, attorneys for the federal government argued that the plaintiff states lack Article III standing to enjoin the provision’s enforcement because they have failed to show how they would use federal funds in a manner inconsistent with the provision.

The federal government also argues that the states “do not come close to demonstrating irreparable harm” as needed for a preliminary injunction. “The [act] does not prohibit a state from cutting taxes; it merely restricts a state’s ability to use federal funds distributed under the Rescue Plan to offset a reduction in net tax revenue. No state has a sovereign interest in using federal funds for that purpose. And each state, of course, remains free to decline the funds,” according to the government.

Missouri Attorney General Eric Schmitt (R) filed a notice of appeal in his state's case over the provision, which was recently dismissed without prejudice.

U.S. District Judge Henry Edward Autrey dismissed Missouri’s motion seeking to block the provision’s enforcement in a May 11 opinion, memorandum, and order in Missouri v. Yellen, No. 4:21-cv-376 HEA (E.D. Mo. 2021).

Schmitt filed the notice of appeal May 17.

Missouri sought to have the provision declared unconstitutional and severed from the act, and it filed a motion for preliminary injunction April 2 seeking to prevent Treasury from enforcing any interpretation of the provision “that is broader than prohibiting the deliberate and express use of the act’s relief funds to offset revenue losses from a specific tax cut.”

The judge determined that the court lacks jurisdiction to hear the case because Missouri “failed to establish Article III standing, and its claim is not ripe for adjudication.”

Copy RID