Phoenix, Arizona - Attorney General Mark Brnovich co-led a letter Monday signed by twenty-one state attorneys general urging the U.S. Department of Treasury (“Treasury”) to take immediate action to ensure the American Rescue Plan Act (“Act”) does not strip States of their core authority to implement basic state tax policy.
Certain provisions of the Act forbid states from using COVID-19 relief funds to “directly or indirectly offset a reduction in…net tax revenues” resulting from state laws or regulations that reduce tax burdens, whether by cutting rates or by giving rebates, deductions, credits, “or otherwise.” Attorney General Brnovich warns that this language could be used to deny Arizona and other states the ability to cut taxes in any manner, even if they would have provided tax relief with or without the prospect of COVID-19 relief funds.
Attorney General Brnovich and his colleagues are urging the Treasury to adopt a more sensible interpretation of the language, warning that a broad interpretation would result in an unprecedented and unconstitutional intrusion on the sovereignty of the States. Such federal usurpation of state tax policy would represent the greatest invasion of state sovereignty by Congress ever attempted.
“A view of state tax policy this expansive by the federal government would not only be a giant overreach, but it would represent an unprecedented and unconstitutional infringement upon Arizona’s sovereignty,” said Attorney General Mark Brnovich. “The pandemic has wreaked havoc on the economy and states like Arizona must be independent and free to determine their own tax policies without the threat of losing federal funds.”
A broad interpretation against “offsetting” reductions could be interpreted to prohibit tax cuts or relief of any kind, even if unrelated to or independent of relief funds. For example, Arizona is currently phasing out law-enforcement fees on vehicle registration renewals, which has no connection to COVID-19 relief funds. But such a policy decision by the Arizona legislature could be deemed a tax “rebate,” “deduction”, “credit”, or “otherwise” that could result in a reduction in the net tax revenue, thus construed as violations of the Act’s prohibition on “offsetting” tax cuts.
The attorneys general also warn that a single governor could accept stimulus funds and thereby bind both the state legislature and a future successor from cutting any tax or tax assessments in the near future. This would be a clear intrusion by Congress upon the democratic structures of the States.
Accordingly, Attorney General Brnovich is asking the Treasury to confirm by March 23 that the Act does not prohibit States from generally providing tax relief, and that the Act simply precludes express use of the relief funds to provide direct tax cuts. The attorneys general will take further appropriate action if such an assurance is not provided to ensure that states like Arizona have the clarity and assurance needed to enact and implement sensible tax policies for the taxpayers of Arizona.
Attorney General Brnovich co-led the letter with the attorneys general from the states of Georgia and West Virginia. Also joining the letter were attorneys general from the states of Alabama, Arkansas, Florida, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Oklahoma, South Carolina, South Dakota, Texas, Utah, and Wyoming.