Federal court halts tax mandate in ARPA lawsuit

FRANKFORT, Ky. (WTVQ) – A U.S. district court Friday stopped the Biden Administration from enforcing a tax mandate in the American Rescue Plan Act that prohibits states from providing tax relief to their citizens.

Kentucky, Tennessee and other attorneys general argued that the tax mandate is unconstitutional and will prevent state legislatures from enacting beneficial tax policies.

The court agreed, writing in the opinion that the federal funds “come with a price — states must forego the exercise of important flexibility and power when it comes to making their own taxing decisions.”

“The court’s ruling returns the power to establish tax policy to the Kentucky General Assembly where it belongs,” said Kentucky Attorney General Daniel Cameron. “It is unconstitutionally coercive for Kentucky’s acceptance of federal COVID relief dollars to be contingent on the federal government’s tax mandate. I was proud to defend the Commonwealth’s rights in this important case.”

In the decision, the court ruled that the American Rescue Plan Act’s tax mandates were unconstitutional.

The court writes, “Thus, where the federal government unduly influences the States’ power to set their own tax policies, the federal government oversteps its bounds. Not only does this threaten the dual nature of our federalist system, but such federal overreach threatens individual liberties that ‘derive from the diffusion of sovereign power.’”