DES MOINES, Iowa – U.S. District Court Judge L. Scott Coogler on Monday in Alabama, ruled that a provision of the American Rescue Plan Act (ARPA) prohibiting states from “directly or indirectly” using federal pandemic relief funds to offset new tax cuts was “a federal invasion of State sovereignty” that was “unconstitutionally ambiguous.”
Iowa was one of thirteen states that filed a lawsuit to block the U.S. Treasury Department from enforcing that provision called “the tax mandate.” The case was filed in the U.S. District Court in the Northern District of Alabama by the Attorney General of Alabama, Steve Marshal. Other states joining the lawsuit are Arkansas, Alaska, Florida, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, Utah, and West Virginia.
“The language of the Tax Mandate makes it impossible for States to make an informed choice about the costs of receiving ARPA funds because it is impossible to know how to exercise taxing authority without putting ARPA funds at risk. Money is fungible, meaning ‘of such a nature that one part or quantity may be replaced by another equal part or quantity in paying a debt or settling an account’ or ‘capable of mutual substitution: interchangeable.’ Thus, any ARPA funds the Plaintiff States receive could be viewed as indirectly offsetting any reduction in net tax revenue from a change in state law or policy,” Coogler wrote in part.
Gov. Kim Reynolds praised the ruling.
“This is a major victory for the State of Iowa and Iowa taxpayers. The Biden Administration was trying to punish fiscally responsible states like Iowa, which has a record budget surplus, and that’s why we took legal action. With this ruling, Biden’s Administration can’t keep us from cutting taxes and I look forward to doing just that,” she said.
