Brief, State of Ohio v. Yellen, No. 1:21-cv-00181 (S.D. Ohio), Doc. 24 (April 9, 2021)

Summary

A brief for amici curiae the Chamber of Commerce of the United States of America and the National Federation of Independent Business Small Business Legal Center, Doc #: 24 in Case No. 1:21-cv-00181-DRC, filed 04/09/21, in the U.S. District Court for the Southern District of Ohio, in State of Ohio v. Yellen. The introduction calls the tax mandate in the American Rescue Plan Act of 2021 (ARPA) unprecedented and unconstitutional, and says Congress made $195.3 billion available to States on the condition that States do not decrease their net revenue. The cover states that oral argument is not requested. The certificate of service is signed s/Paul D. Clement.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Cite this document

“Brief, State of Ohio v. Yellen, No. 1:21-cv-00181 (S.D. Ohio), Doc. 24 (April 9, 2021).” Original at storage.courtlistener.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/brief-state-of-ohio-v-yellen-no-1-21-cv-00181-s-d-ohio-doc-24-april-9-9ec1ff6f45/, SHA-256 6edc871d8d9b6519b4c9ccf680eeb0c7e7afb3ce0a21b21bfc2cef74931133ae.

Full text

Case: 1:21-cv-00181-DRC Doc #: 24 Filed: 04/09/21 Page: 1 of 30 PAGEID #: 155

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO

STATE OF OHIO, )
)
Plaintiff, )
)
v. ) No. 1:21-cv-181
)
JANET YELLEN, in her official capacity ) ORAL ARGUMENT NOT
as Secretary of the Treasury; RICHARD ) REQUESTED
K. DELMAR, in his official capacity as )
acting inspector general of the )
Department of Treasury; and U.S. )
DEPARTMENT OF THE TREASURY, )
)
Defendants. )
)
BRIEF FOR AMICI CURIAE
CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA
AND NATIONAL FEDERATION OF INDEPENDENT BUSINESS SMALL
BUSINESS LEGAL CENTER

DARYL JOSEFFER PAUL D. CLEMENT (pro hac vice)
PAUL LETTOW ERIN E. MURPHY
U.S. CHAMBER LITIGATION KASDIN M. MITCHELL
CENTER LAURA E. WOLK
1615 H Street NW ELIZABETH HEDGES
Washington, DC 20062 KIRKLAND & ELLIS LLP
(202) 463-5337 1301 Pennsylvania Avenue NW
KAREN HARNED Washington, DC 20004
ROB SMITH (202) 389-5000
NFIB SMALL BUSINESS LEGAL
CENTER
1201 F. St. NW #200
Washington, DC 20004
(202) 314-2061

April 9, 2021
Case: 1:21-cv-00181-DRC Doc #: 24 Filed: 04/09/21 Page: 2 of 30 PAGEID #: 156

CORPORATE DISCLOSURE STATEMENT
The Chamber of Commerce of the United States of America is a nonprofit,

tax-exempt organization incorporated in the District of Columbia. The National

Federation of Independent Business Small Business Legal Center is a 501(c)(3)

public interest law firm and is affiliated with the National Federation of Independent

Business, a 501(c)(6) business association. Neither the Chamber of Commerce of

the United States of America nor the National Federation of Independent Business

has a parent corporation, nor does any publicly held corporation own 10% or more

of their stock. No publicly held corporation or its affiliate that is not a party to this

case or appearing amici curiae has a substantial financial interest in the outcome of

this litigation by reason of insurance, a franchise agreement, or an indemnity

agreement.

ii
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TABLE OF CONTENTS
CORPORATE DISCLOSURE STATEMENT ......................................................... ii

TABLE OF AUTHORITIES .................................................................................... iv

STATEMENT OF INTEREST.................................................................................. 1

INTRODUCTION AND SUMMARY OF ARGUMENT ........................................ 2

ARGUMENT ............................................................................................................ 4

I. The Tax Mandate Is An Unconstitutional Incursion On A Core
Attribute Of State Sovereignty And An Impermissibly Coercive
Condition On Federal Funds........................................................................... 7

II. Left Standing, The Tax Mandate Will Have Dire Consequences ................. 14

CONCLUSION ....................................................................................................... 20

CERTIFICATE OF SERVICE

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TABLE OF AUTHORITIES

Cases
Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy,
548 U.S. 291 (2006) ............................................................................................18

Bode v. Barrett,
344 U.S. 583 (1953) ..............................................................................................7

Bond v. United States,
564 U.S. 211 (2011) ..........................................................................................8, 9

Coyle v. Smith,
221 U.S. 559 (1911) ..............................................................................................9

Dep’t of Revenue v. ACF Indus., Inc.,
510 U.S. 332 (1994) ..............................................................................................7

Dows v. City of Chicago,
78 U.S. (11 Wall.) 108 (1870) .........................................................................7, 14

Free Enter. Fund v. PCAOB,
561 U.S. 477 (2010) ............................................................................................10

M’Culloch v. Maryland,
17 U.S. (4 Wheat.) 316 (1819)..............................................................................7

National Federation of Independent Business v. Sebelius,
567 U.S. 519 (2012) ............................................................................3, 10, 11, 12

New York v. United States,
505 U.S. 144 (1992) ............................................................................................10

Plaut v. Spendthrift Farm, Inc.,
514 U.S. 211 (1995) ............................................................................................10

Providence Bank v. Billings,
29 U.S. (4 Pet.) 514 (1830) ...............................................................................7, 8

South Dakota v. Dole,
483 U.S. 203 (1987) ........................................................................................4, 18

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Steward Mach. Co. v. Davis,
301 U.S. 548 (1937) ............................................................................................ 11

Constitutional Provisions
U.S. Const. Art. I, §10 ................................................................................................7

U.S. Const. Art. I, §8, cl. 1 .........................................................................................7

U.S. Const. Art. I, §9 ..................................................................................................7

U.S. Const. Amend. XVI .......................................................................................7, 8

Legislative Materials
H.B. 1071, 112th Gen. Assemb., Reg. Sess. (Tenn. 2021) ......................................16

H.B. 114, 156th Gen. Assemb., Reg. Sess. (Ga. 2021)............................................17

H.B. 1406, 101st Gen. Assemb., Reg. Sess. (Mo. 2021) .........................................16

H.B. 227, 2021 Leg., Reg. Sess. (Ala. 2021) ...........................................................17

H.B. 279, 67th Leg., Reg. Sess. (Mont. 2021).........................................................17

H.B. 429, 101st Gen. Assemb., 1st Reg. Sess. (Mo. 2021) .....................................17

S.B. 1, 55th Leg., 1st Sess. (N.M. 2021) .......................................................... 15, 16

S.B. 101, 2021 Gen. Ct., Reg. Sess. (N.H. 2021) ....................................................16

S.B. 149, 2021 Gen. Assemb., Reg. Sess. (Kan. 2021) ...........................................15

S.B. 372, 87th Leg., Reg. Sess. (Tex. 2021) ............................................................16

S.B. 446, 85th Gen. Assemb., Reg. Sess. (W. Va. 2021) .........................................17

S.B. 496, 442d Gen. Assemb., Reg. Sess. (Md. 2021) ............................................15

Pub. L. No. 117-2 ............................................................................................ 3, 5, 20

Other Authorities
Alex Sherman,
Five Charts That Show How COVID-19 Stopped the

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U.S. Economy In Its Tracks, CNBC (Mar. 11, 2021),
https://cnb.cx/3cZ97O0.......................................................................................13

Anne Sraders & Lance Lambert,
COVID Business: Nearly 100,000 Establishments That
Temporarily Shut Down Are Now Out of Business,
Fortune (Sept. 28, 2020), https://bit.ly/3t6dpci ..................................................13

Anshu Siripurapu & Jonathan Masters,
How COVID-19 Is Harming State and City Budgets,
Council on Foreign Relations (Mar. 19, 2021),
https://on.cfr.org/3f9vjqm ...................................................................................13

Associated Press,
New Mexico To Issue $600 One-Time Tax Rebates Amid Pandemic
(Mar. 24, 2021), https://bit.ly/320cJJv ................................................................17

City of Phila. v. Sessions,
280 F. Supp. 3d 579 (E.D. Pa. 2017) ..................................................................20

Complaint,
Arizona v. Yellen,
No. 2:21-cv-00514-DJH (filed Mar. 25, 2021)................................................... 11

Erin Huffer & Aravind Boddupalli,
The Leisure & Hospitality Sector Has an Employment Crisis—
and It Might Be Getting Worse, Urban Wire (July 20, 2020),
https://urbn.is/397ptlz .........................................................................................13

Hearing on CARES Act Quarterly Report,
Sen. Banking, Hous. & Urb. Affairs Comm. (Mar. 24, 2021) ............................18

Holly Wade & Andrew Heritage,
Small Business Problems & Priorities 2020,
NFIB Research Center (July 2020), https://bit.ly/3wpWt2g ..............................16

How the COVID-19 Pandemic is Transforming State Budgets,
Urban Institute (Apr. 2, 2021), https://urbn.is/3cAJjrj .......................................12

Jared Walczak,
Four Questions Treasury Must Answer About

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the State Tax Cut Prohibition in the American Rescue Plan Act,
Tax Foundation (Mar. 18, 2021), https://bit.ly/3cYu0YB................................... 11

Laura Davison,
Treasury Clears States to Cut Taxes – But Not With Stimulus,
Bloomberg (March 18, 2021), https://bloom.bg/3wFsTpH............................6, 18

Letter from Janet L. Yellen to 21 State Attorneys General
(Mar. 23, 2021), https://bit.ly/3sEwBO9 .............................................................6

Letter from Janet L. Yellen to Hon. Mark Brnovich,
Attorney General (Mar. 23, 2021) ......................................................................18

Lucy Dadayan,
COVID-19 Pandemic Could Slash 2020-21 State Revenues by
$200 Billion, Tax Policy Center (Jul. 1, 2020),
https://tpc.io/2NKE8M5 .....................................................................................14

Nat’l Ass’n of State Budget Officers, Budget Processes in the States
(2015), https://bit.ly/3dNTfNR ...........................................................................19

Nat’l Restaurant Ass’n,
Restaurant Sales Fell to Their Lowest Level Since June
(Jan. 15, 2021), https://bit.ly/3d5gVwu ..............................................................12

Nat’l Restaurant Ass’n, Restaurant Employment Fell for
the Third Consecutive Month (Feb. 5, 2021),
https://bit.ly/31b0pG3 .........................................................................................13

NFIB Research Center,
Covid-19 Small Business Survey (16)
(Mar. 16, 2021), https://bit.ly/3dv5COz ............................................................12

Office of Gov. Gavin Newsom,
Governor Newsom Signs Legislative Package Providing Urgent
Relief to Californians Experiencing Pandemic Hardship (Feb. 23,
2021), https://bit.ly/2Q6wXOU ..........................................................................15

Office of Gov. Larry Hogan,
The RELIEF Act of 2021, https://bit.ly/2O6yoMG............................................17

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Oxford Economic Analysis, State-by-State Job Loss:
COVID Continues to Devastate Hotel Industry,
Am. Hotel & Lodging Ass’n (Feb. 2021), https://bit.ly/3uG0H47 ....................13

Patrick Gleason,
How Senator Joe Manchin’s Move To Block Tax Relief
in His Own State Costs All U.S. Taxpayers,
Forbes (Mar. 16, 2021), https://bit.ly/31vV782 ..................................................20

Press Release, President Biden Announces American Rescue Plan,
White House (Jan. 20, 2021), https://bit.ly/3f4S5Qe .........................................20

Press Release, Statement on State Fiscal Recovery Funds and Tax
Conformity, U.S. Dep’t of Treasury (Apr. 7, 2021) ............................................18

State Economic Monitor
(Mar. 26, 2021), https://urbn.is/3d1hsj3 .............................................................13

Tennessee Bill Would Exempt Groceries from Sales Tax
for May Through October 2021, WBIR (Mar. 18, 2021),
https://bit.ly/39tL2wU.........................................................................................16

Vanessa Romo et al.,
Tornadoes Strike Alabama, Georgia Leaving at Least 5 Dead,
NPR (Mar. 26, 2021), https://n.pr/2PpDZ1f .......................................................19

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STATEMENT OF INTEREST1
Founded in 1912, the Chamber of Commerce of the United States of America

(the “Chamber”) is the world’s largest business federation. It represents

approximately 300,000 members and indirectly represents the interests of more than

3 million companies and professional organizations of every size, in every economic

sector, and from every region of the country. An important function of the Chamber

is to represent the interests of its members by participating as a litigant or amicus

curiae in cases involving issues of concern to American businesses, such as this one.

The National Federation of Independent Business (“NFIB”) is the nation’s

leading small business association. Its membership spans the spectrum of business

operations, ranging from sole proprietor enterprises to firms with hundreds of

employees. Founded in 1943 as a nonprofit, nonpartisan organization, NFIB’s

mission is to promote and protect the right of its members to own, operate, and grow

their businesses. The NFIB Small Business Legal Center is a nonprofit, public

interest law firm established to provide legal resources and be the voice for small

businesses in the nation’s courts through representation on issues of public interest

affecting small businesses. To fulfill its role as the voice for small business, the

1
The parties have consented to the filing of all amicus briefs filed by the
deadlines listed in the Court’s Order of March 30, 2021 (Doc. #14).
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Legal Center frequently files amicus briefs in cases that will impact small

businesses.

Amici 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 well-being of U.S. businesses. Amici

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 due to closures and other restrictions imposed on them due to

the pandemic. The tax mandate will undoubtedly stifle innovation in the States that

is critical to businesses’ economic recovery and to the well-being of businesses and

their employees. For these reasons and others described below, amici respectfully

urge this Court to grant Ohio’s request for a preliminary injunction.2

INTRODUCTION AND SUMMARY OF ARGUMENT
The novel tax mandate at the heart of this case is unprecedented and

unconstitutional. Never before in the history of the Republic has the federal

government conditioned the receipt of federal funds on a State’s surrender of its

power to control its own tax policies. It is beyond question that Congress cannot

dictate state tax policy directly, and such an intrusion into core matters of state

2
No counsel for any party authored this brief in whole or in part, and no entity
or person, aside from amici curiae, their members, and their counsel, made any
monetary contribution toward the preparation or submission of this brief.
2
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sovereignty is ultra vires even as a condition on federal funds. Congress has resisted

the temptation to impose such a condition for over two centuries not out of

uncharacteristic self-restraint, but because the power to impose such conditions is

lacking. But at bare minimum, Congress cannot coerce States into surrendering such

a core aspect of sovereignty with an offer they cannot refuse—a massive federal

relief package ultimately funded by taxpayers.

In the American Rescue Plan Act of 2021 (ARPA), Congress has made $195.3

billion in taxpayer dollars—i.e., money collected from the States’ citizens—

available to States if and only if States agree not to pass any laws or take any

administrative actions that decrease their net revenue, whether that decrease comes

through tax credits, rebates, reductions in tax rates, or new or expanded deductions.

Pub. L. No. 117-2, §9901(b)(3)(A). For most States, the massive amount of funds

available under ARPA—nearly 20% of state government revenues nationwide—

eclipses even the massive volume of Medicaid funding held to be coercive under

National Federation of Independent Business v. Sebelius (“NFIB”), 567 U.S. 519,

581-82, 588 (2012). And the coercion is even more acute here given that the entire

point of ARPA is to help alleviate the effects of a once-in-a-lifetime global pandemic

that has left some States and many of their residents in financial ruin. The notion

that a State could refuse such a massive amount of federal relief money raised from

its own taxpaying citizenry in these extraordinary times is fanciful. In effect, then,

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Congress has commandeered the tax power of the States—something that Congress

plainly lacks the power to do.

The unprecedented tax mandate is already eroding state sovereignty, and it

will continue to do so unless and until this Court enjoins it. While the federal

government tries to sort out the precise metes and bounds of its trespass on state

sovereignty (a constitutional problem in its own right, see South Dakota v. Dole, 483

U.S. 203, 207 (1987)), state lawmakers are left with little choice but to halt critical

public policy measures that implicate their fiscs. Those measures range from tax

credits for families, to sales tax exemptions for groceries, to natural disaster relief,

and more. With States forced to put these policies on hold out of fear that they will

threaten their federal relief, there can be no question that the States and their citizens

are suffering irreparable injury right now. Any contrary federal interest is minimal,

if not entirely ultra vires. The Court should promptly enjoin this unprecedented and

patently unconstitutional prohibition.

ARGUMENT
ARPA offers approximately $195 billion to States in an effort to aid the States’

and their residents’ financial recovery from the COVID-19 pandemic. Like most

spending power legislation, the Act expressly enumerates the purposes to which

States may put those funds. States may use the money to: (a) “respond to the public

health emergency with respect to [COVID-19] or its negative economic impacts,

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including assistance to households, small businesses, and nonprofits, or aid to

impacted industries such as tourism, travel, and hospitality”; (b) “respond to workers

performing essential work” during the pandemic by providing premium pay or

grants; (c) provide government services “to the extent of the reduction” in local

revenue “due to [COVID-19] relative to revenues collected in the most recent full

fiscal year … prior to the emergency”; and (d) “make necessary investments in

water, sewer, or broadband infrastructure.” Pub. L. No. 117-2, §9901(c)(1)(A)-(D).

In addition to those conditions, the Act includes a section titled “further

restriction” on the “use of funds.” Id. §9901(c)(2) (capitalization altered). One such

restriction provides:

A State or territory shall not use the funds provided under this section
or transferred pursuant to section 603(c)(4) 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.

Id. §9901(c)(2)(A). If a State violates that prohibition, it must repay the funds in “an

amount equal to the amount of funds used in violation” of the Act. Id. §9901(e).

The Act also prohibits States from using the funds for “deposit into any pension

fund.” Id. §9901(c)(2)(B).

By its terms, the tax mandate is breathtakingly broad. By prohibiting the relief

funds from even “indirectly” offsetting a decrease in state revenue, the provision

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appears to reach any “law, regulation, or administrative action” that effects a

reduction in rate, rebate, deduction, or credit, regardless of whether any federal funds

received were used to finance that tax measure. By its terms, it would appear to

preclude any state revenue official from adopting any pro-taxpayer interpretation of

a disputed provision. The prohibition even goes so far as to forbid a State to delay

the imposition of a tax or tax increase, even as a hardship allowance for the crippling

financial consequences of the pandemic.

The Treasury Department has indicated that the prohibition may reach only

tax cuts that are specifically paid for with relief funds. See Laura Davison, Treasury

Clears States to Cut Taxes – But Not With Stimulus, Bloomberg (March 18, 2021),

https://bloom.bg/3wFsTpH; Letter from Janet L. Yellen to 21 State Attorneys

General (Mar. 23, 2021), https://bit.ly/3sEwBO9. But those one-off (and

nonbinding) statements are in tension with the plain text (not to mention the fungible

nature of money), and they provide cold comfort to state lawmakers, many of whom

are in the middle of their time-limited legislative sessions now. Moreover, the only

thing worse than an unprecedented intrusion into state sovereignty is confusion over

the extent of the federal intrusion. The only proper judicial course, while the

executive contemplates the degree of congressionally authorized intrusion, is to

enjoin the provision.

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I. The Tax Mandate Is An Unconstitutional Incursion On A Core Attribute
Of State Sovereignty And An Impermissibly Coercive Condition On
Federal Funds.
The power to tax or not to tax lies at the absolute core of sovereignty.

Misguided taxes spurred the revolution that produced our Republic. Our founding

document includes multiple specifications of what both federal and state

governments can and cannot tax. U.S. Const. Art. I, §8, cl. 1; id. Art. I, §9, cl. 1, 4,

5; id. Art. I, §10, cl. 2; id. Amend. XVI. And our earliest and greatest judicial

decisions recognize that “the power to tax involves the power to destroy.”

M’Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 431 (1819).

It is no surprise that the Supreme Court has recognized that the power to tax

is “central to state sovereignty.” Dep’t of Revenue v. ACF Indus., Inc., 510 U.S. 332,

345 (1994); see also, e.g., Bode v. Barrett, 344 U.S. 583, 585 (1953). Indeed, the

“power to regulate the public revenue” is “necessary” to a State’s “very existence,”

for the “power of self government … cannot exist distinct from the power of

taxation,” Providence Bank v. Billings, 29 U.S. (4 Pet.) 514, 546, 548 (1830), which

is the principal way in which a State “obtain[s] the means to carry on [its] respective

government[],” Dows v. City of Chicago, 78 U.S. (11 Wall.) 108, 110 (1870). Thus,

it has been settled law from the earliest days of the Republic that a State “alone”

may, “within its own jurisdiction,” “judge and determine how, in what manner, and

upon what objects that power shall be exercised.” Billings, 29 U.S. at 544. Simply

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put, it is difficult to conceive of a greater threat to the “integrity, dignity, and residual

sovereignty of the States,” Bond v. United States, 564 U.S. 211, 221 (2011), than the

loss of their sovereign right to decide whether and how much to tax their citizens.

If anything, that core attribute of state sovereignty has taken on even greater

importance in the wake of the Sixteenth Amendment, which empowers the federal

government to tax the income of the States’ citizenry. See U.S. Const. Amend. XVI.

Taxing citizens is a zero-sum game. No matter how many sovereigns tax them,

citizens cannot be taxed more than 100%, and they begin avoiding taxable activity

at far lower rates. That makes the States’ power to set their own tax policy in the

shadow of the Sixteenth Amendment critical not only to their ability to sustain their

own governments, but also to serve as a check on the federal government’s own

taxing power. States may not be able to stop the federal government from taxing the

income their citizens produce. But at least States can try to alleviate the burden on

their citizens by reducing their own reliance on tax revenues, especially when the

federal government uses the tax revenues it collects from their citizenry to insert

itself into functions traditionally left to the States (or even more perversely

redistributes federal tax revenues to States to spend on matters of traditional state

concern). The States’ ability to play this safety-valve role is critical to preserving

the framers’ vision that a system of dual-sovereignty would enhance, rather than

threaten, individual liberty. See Bond, 564 U.S. at 221.

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Those bedrock tenets of federalism should suffice to resolve this case. Some

matters are simply too close to the core of state sovereignty for the federal

government to dictate their terms, even if the terms are framed as conditions. See,

e.g., Coyle v. Smith, 221 U.S. 559, 577 (1911) (holding unconstitutional effort to

prevent Oklahoma from relocating its capitol as a condition of its admission to the

Union). Just as it is not for the federal government to decide where a State should

locate its capitol, it is not for the federal government to decide whether a State should

lower or raise taxes. That Congress has purported to do so here as a condition on

the receipt of federal funds (or, more aptly, federal tax revenues collected from the

States’ own citizens) makes no difference. As Coyle recognizes, some conditions

reach so deeply into the core of state sovereignty that they are simply ultra vires even

as conditions on funds.

That is clearly true of this unprecedented effort to dictate state tax policy. If

the power to tax is indeed the power to destroy, then the federal government has no

more business dictating what state governments may and may not tax than states

have in taxing federal instrumentalities. If Congress determined that state income

taxes were an impediment to federal-income-tax collection, it could not force States

out of the income-tax enterprise either directly or indirectly as a condition of a

tranche of federal funds. Indeed, where the Constitution puts certain revenue sources

off-limits to States, it does so directly, as with Article I, Section 10’s express

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prohibition on state taxes on imports and exports without Congress’ consent. The

idea that Congress itself could add another clause to Article I, Section 10, either

directly or as a condition of federal funding, should be a non-starter. That likely

explains why Congress has never before taken that extraordinary step of trying to

dictate state taxing policy—itself a sure sign that Congress lacks the power to do so.

Cf. Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 230 (1995) (Congress’ “prolonged

reticence would be amazing if such interference were not understood to be

constitutionally proscribed”); Free Enter. Fund v. PCAOB, 561 U.S. 477, 505 (2010)

(“Perhaps the most telling indication of the severe constitutional problem … is the

lack of historical precedent ….”).

In fact, ARPA’s tax mandate is unconstitutional twice over, for it suffers from

the additional infirmity that it is impermissibly coercive. As the Supreme Court

reaffirmed in NFIB, when Congress offers federal funds to States on the condition

that they enact or refrain from enacting certain policies, the condition is permissible

only if the offer is voluntary not just in theory, but in fact. See 567 U.S. at 577. That

limitation is critical because, “[n]o matter how powerful the federal interest

involved, the Constitution simply does not give Congress the authority to require the

States to regulate.” New York v. United States, 505 U.S. 144, 181-82 (1992). By

effectively circumventing that rule, efforts to use the power of the federal purse to

coerce States to do Congress’ bidding “undermine the status of the States as

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independent sovereigns in our federal system.” NFIB, 567 U.S. at 577. It is thus

incumbent on courts to carefully “scrutinize” spending legislation to ensure that

Congress is “not using financial inducements to exert a ‘power akin to undue

influence’” on the States. Id. (quoting Steward Mach. Co. v. Davis, 301 U.S. 548,

590 (1937)). Federal “pressure turns into compulsion” when States no longer have

a “legitimate choice whether to accept the federal conditions in exchange for federal

funds.” Id. at 577, 643.

There can be no serious question that ARPA is coercive. In NFIB, the

threatened “loss of over 10 percent of a State’s overall budget” was “surely beyond”

the constitutional line. Id. at 582, 585. Here, the $195.3 billion available to States

and the District of Columbia eclipses that by any measure. It is equivalent to a

whopping 20% of the annual state tax collections of state governments. Jared

Walczak, Four Questions Treasury Must Answer About the State Tax Cut Prohibition

in the American Rescue Plan Act, Tax Foundation (Mar. 18, 2021),

https://bit.ly/3cYu0YB. For some States, the impact is even greater. The money

available to Arizona, for instance, is equivalent to about 40% of its general fund

budget. See Complaint ¶11, Arizona v. Yellen, No. 2:21-cv-00514-DJH (filed Mar.

25, 2021). And in Mississippi, it is nearly 30% of its 2021 budget. How the COVID-

19 Pandemic is Transforming State Budgets, Urban Institute (Apr. 2, 2021),

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https://urbn.is/3cAJjrj. As in NFIB, the sheer amount of money at issue “leaves the

States with no real option but to acquiesce.” 567 U.S. at 582.

And numbers alone do not tell the whole story. Over the past year, the

COVID-19 pandemic has forced the whole world to endure extreme economic

hardship. Entire industries shut down for months on end, while others operated with

reduced hours and customer capacities, all under the pressure of supply chain

constraints. Thousands of Americans lost their jobs, had to forgo higher education,

and have been crushed by medical bills related to COVID-19 treatments.

Amici have witnessed firsthand the economic devastation of the pandemic.

Small businesses, in particular, have faced unprecedented economic hardship. In

surveys of small business owners, nearly a quarter of participants reported that their

current sales volume is 50% or less of its pre-pandemic level. NFIB Research

Center, Covid-19 Small Business Survey (16) at 9 (Mar. 16, 2021),

https://bit.ly/3dv5COz. And nearly half had employees take pandemic-related sick

leave or family leave. See id. at 8. The hospitality industry was also ravaged, as

foodservice sales were down $240 billion from expected levels in 2020. See Nat’l

Restaurant Ass’n, Restaurant Sales Fell to Their Lowest Level Since June (Jan. 15,

2021), https://bit.ly/3d5gVwu; see also Alex Sherman, Five Charts That Show How

COVID-19 Stopped the U.S. Economy In Its Tracks, CNBC (Mar. 11, 2021),

https://cnb.cx/3cZ97O0. Nearly a third of all restaurant and hospitality workers lost

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their jobs in the first few months of the pandemic, Erin Huffer & Aravind

Boddupalli, The Leisure & Hospitality Sector Has an Employment Crisis—and It

Might Be Getting Worse, Urban Wire (July 20, 2020), https://urbn.is/397ptlz, and

many have yet to return, see Nat’l Restaurant Ass’n, Restaurant Employment Fell

for the Third Consecutive Month (Feb. 5, 2021), https://bit.ly/31b0pG3 (nearly

450,000 restaurant jobs recently lost); Oxford Economic Analysis, State-by-State

Job Loss: COVID Continues to Devastate Hotel Industry, Am. Hotel & Lodging

Ass’n (Feb. 2021), https://bit.ly/3uG0H47 (hospitality industry unemployment rate

300% higher than rest of economy). And more than 100,000 businesses of all stripes

have permanently shuttered their doors. Anne Sraders & Lance Lambert, COVID

Business: Nearly 100,000 Establishments That Temporarily Shut Down Are Now Out

of Business, Fortune (Sept. 28, 2020), https://bit.ly/3t6dpci.

These economic hardships not only impact States’ residents, but have a direct

impact on States’ budgets, which face dwindling tax revenues alongside rising

healthcare costs and record unemployment claims. See Anshu Siripurapu &

Jonathan Masters, How COVID-19 Is Harming State and City Budgets, Council on

Foreign Relations (Mar. 19, 2021), https://on.cfr.org/3f9vjqm. In Ohio alone, private

employment over the past year is down 5.4%, or 260,660 jobs. State Economic

Monitor (Mar. 26, 2021), https://urbn.is/3d1hsj3. Indeed, the pandemic is projected

to slash state revenues by $200 billion—nearly the exact same amount of money

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available under the Act. See Lucy Dadayan, COVID-19 Pandemic Could Slash

2020-21 State Revenues by $200 Billion, Tax Policy Center (Jul. 1, 2020),

https://tpc.io/2NKE8M5. Even in ordinary times, to refuse such a massive influx of

tax dollars would be unthinkable; in these extraordinary times, to do so would border

on unconscionable. The tax mandate thus should be seen—and rejected—as exactly

what it is: an unconstitutional effort to strip States of their core sovereign right to

determine their own tax policy.

II. Left Standing, The Tax Mandate Will Have Dire Consequences.
Not only is the tax mandate unconstitutional; it threatens immediate and

drastic consequences that readily justify the immediate relief of a preliminary

injunction. The mandate’s ostensible ban on any tax measure that reduces a State’s

net revenues puts at risk countless critical policies that state lawmakers are seeking

to effectuate through their tax codes right now. The Supreme Court has long

recognized that any “delay” in a State’s ability to enforce its tax policies “may

derange the operations of government,” causing “serious detriment to the public.”

Dows, 78 U.S. at 110. That is as true today as it was 150 years ago. Indeed, if

anything, the threat is even more pronounced at this critical juncture in our Nation’s

history because many of the policies States are pursuing are designed to reduce the

financial strain of the pandemic within their respective borders.

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Many tax measures in the States would directly reduce the tax burden on

businesses, and in particular small businesses and industries that have suffered

substantial harm as the result of government-mandated closures and other

restrictions. Many of these businesses and their employees are struggling to make

ends meet. The ability to reduce their tax burdens is a critical tool in the States’

efforts to keep these businesses afloat and restore economic vitality within their

borders. For example, New Mexico recently established a gross receipts tax

deduction for food and beverage establishments, which were hit particularly hard by

pandemic-related closures and restrictions. S.B. 1, 55th Leg., 1st Sess. (N.M. 2021).

Maryland recently passed its own sweeping COVID-19 relief bill that, among other

things, supports small businesses with a sales tax credit of up to $3,000 per month—

a nearly $200 million commitment. S.B. 496, 442d Gen. Assemb., Reg. Sess. (Md.

2021). And California’s relief bill includes $2.1 billion for grants to small businesses

impacted by the pandemic, as well as fee waivers for the nearly 60,000 restaurants

and bars licensed through the State. See Office of Gov. Gavin Newsom, Governor

Newsom Signs Legislative Package Providing Urgent Relief to Californians

Experiencing Pandemic Hardship (Feb. 23, 2021), https://bit.ly/2Q6wXOU.

The list goes on. Kansas is considering reimbursing the property tax owed by

businesses impacted by closure orders. S.B. 149, 2021 Gen. Assemb., Reg. Sess.

(Kan. 2021). That measure will save myriad businesses whose property tax

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obligations might otherwise drive them out of business. See Holly Wade & Andrew

Heritage, Small Business Problems & Priorities 2020 at Table 1, NFIB Research

Center (July 2020), https://bit.ly/3wpWt2g (property taxes and state business income

taxes listed as top concerns). The New Hampshire legislature is considering raising

the gross income threshold for filing business profits tax returns. S.B. 101, 2021

Gen. Ct., Reg. Sess. (N.H. 2021). Missouri is considering tax credits for businesses

that were shut down by local government orders over the past year. H.B. 1406, 101st

Gen. Assemb., Reg. Sess. (Mo. 2021). And Texas is considering excluding loans

forgiven under the federal Paycheck Protection Program for purposes of state

franchise taxes. S.B. 372, 87th Leg., Reg. Sess. (Tex. 2021).

The States’ efforts also reach far beyond the business community. Tennessee

is considering exempting groceries from sales tax from May to October 2021, to ease

families’ grocery bills as the pandemic moves well past the one-year mark. H.B.

1071, 112th Gen. Assemb., Reg. Sess. (Tenn. 2021). The bill is projected to save a

family of four around $100 a month, but will reduce the State’s revenues by more

than $20 million. See Tennessee Bill Would Exempt Groceries from Sales Tax for

May Through October 2021, WBIR (Mar. 18, 2021), https://bit.ly/39tL2wU. New

Mexico recently passed a $600 income tax rebate to families and individuals who

receive the state’s Working Families tax credit. S.B. 1, 55th Leg., 1st Sess. (N.M.

2021). The legislature authorized the rebates earlier this year, and the measure has

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already cost the State $66 million. Associated Press, New Mexico To Issue $600

One-Time Tax Rebates Amid Pandemic (Mar. 24, 2021), https://bit.ly/320cJJv. And

Maryland’s relief law provides direct stimulus payments to low-income residents—

a total of $178 million in relief to 400,000 Marylanders. See Office of Gov. Larry

Hogan, The RELIEF Act of 2021, https://bit.ly/2O6yoMG.

In addition, many States are considering tax measures that have nothing to do

with COVID-19 relief, but that are manifestly in the public interest. For instance,

Georgia recently extended tax credits for families who adopt a child out of foster

care, to become effective on July 1, 2021. See H.B. 114, 156th Gen. Assemb., Reg.

Sess. (Ga. 2021). Missouri is considering the same. See H.B. 429, 101st Gen.

Assemb., 1st Reg. Sess. (Mo. 2021). Alabama is considering tax deductions that

would enable citizens to purchase storm shelters to protect their families from

tornadoes. See H.B. 227, 2021 Leg., Reg. Sess. (Ala. 2021). Montana is considering

increasing its current education tax credit for families. See H.B. 279, 67th Leg., Reg.

Sess. (Mont. 2021). And West Virginia is considering extending its tax credit for

charitable organizations that invest in local communities. S.B. 446, 85th Gen.

Assemb., Reg. Sess. (W. Va. 2021). Given its most natural construction, the tax

mandate would implicate all of these measures.

To be sure, the Treasury Department has tried to assure States that the mandate

need not be read so broadly, claiming that States remain “free to make policy

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decisions to cut taxes” so long as they do not “use the pandemic relief funds to pay

for those tax cuts.” Davison, supra p.6 (quoting Treasury spokesperson); Letter from

Janet L. Yellen to Hon. Mark Brnovich, Attorney General (Mar. 23, 2021); see also

Press Release, Statement on State Fiscal Recovery Funds and Tax Conformity, U.S.

Dep’t of Treasury (Apr. 7, 2021). But when pressed on what that actually means in

a world where money is fungible and tax cuts are not “paid for,” the way a new

highway might be, the Treasury Secretary admitted that the issue is “thorny.”

Hearing on CARES Act Quarterly Report, Sen. Banking, Hous. & Urb. Affairs

Comm. (Mar. 24, 2021) (testimony of Sec’y Yellen). Given the Act’s bar on using

the relief funds even to “indirectly” effect a revenue decrease and the “fungibility of

money,” the Secretary conceded that it is “hard … to answer” exactly how much

ARPA may “hamstr[i]ng” the States. Id. (Sec’y Yellen and Sen. Crapo).

That alone is a fatal problem, as Congress must impose any conditions on the

States’ receipt of federal funds “unambiguously[,] enabl[ing] the States to exercise

their choice knowingly, cognizant of the consequences of their participation.” Dole,

483 U.S. at 207; see also Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 548 U.S.

291, 296 (2006) (requiring “clear notice” of conditions). But even setting the

ambiguity problem aside, States have no time to wait for Treasury to decide if and

how it may try to interpret the mandate more narrowly (if such a narrowing

construction is even possible). States are confronted with pressing public policy

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issues now, and many are on the clock. In the overwhelming majority of States, state

constitutions and/or statutes limit how long the legislature can be in session, and

most require the legislature to balance the budget during the prescribed time. See

Nat’l Ass’n of State Budget Officers, Budget Processes in the States at T.1 (2015),

https://bit.ly/3dNTfNR.

Alabama provides an example. Its session commenced on February 2 and

must conclude by May 18. The legislature thus must decide in a matter of weeks

whether to pass a tax deduction for storm shelters—an issue of critical import after

a recent tornado devastated part of the State. See Vanessa Romo et al., Tornadoes

Strike Alabama, Georgia Leaving at Least 5 Dead, NPR (Mar. 26, 2021),

https://n.pr/2PpDZ1f. Tennessee is under an even tighter timeline. Its general

session concludes on April 30, by which time it must give an up or down vote on its

sales tax exemption for groceries. These States and many others cannot wait for

Treasury to make up its mind; they need to have a clear understanding that they may

continue to exercise their sovereign prerogative to reduce taxes.

It is difficult to see how the federal government has any legitimate interest in

prohibiting States from lowering the tax burden on their residents. But even

assuming some such interest may exist, the balance of equities would plainly weigh

in favor of injunctive relief. The tax mandate was an eleventh-hour addition to the

bill, with no formal legislative history to speak of. See Patrick Gleason, How Senator

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Joe Manchin’s Move To Block Tax Relief in His Own State Costs All U.S. Taxpayers,

Forbes (Mar. 16, 2021), https://bit.ly/31vV782. Congress did not even bother to

explain why it chose to rush in where two centuries of previous congresses feared to

tread. The whole point of ARPA is to provide economic relief to critical sectors of

American society that were hit especially hard by the pandemic. See Pub. L. 117-2

§9901(c)(1)(A); Press Release, President Biden Announces American Rescue Plan,

White House (Jan. 20, 2021), https://bit.ly/3f4S5Qe. Tax relief is an obvious means

of achieving that policy objective, yet Congress placed it off limits. Cf. City of Phila.

v. Sessions, 280 F. Supp. 3d 579, 657 (E.D. Pa. 2017) (finding it meaningful that

requiring the city to forgo funds would prevent the city from addressing the opioid

epidemic, which the Trump Administration had described as “a major public health

crisis”). And that is to say nothing of how Congress could possibly have an interest

in halting myriad non-COVID-19-related tax measures that undoubtedly will benefit

Americans and American businesses at a time when they need it most. In short, even

assuming there are some equities on the other side of the ledger, the balance is not

even close.

CONCLUSION
For the reasons set forth above, this Court should grant Ohio’s motion for a

preliminary injunction.

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Respectfully submitted,

s/Paul D. Clement
DARYL JOSEFFER PAUL D. CLEMENT (pro hac vice)
PAUL LETTOW ERIN E. MURPHY
U.S. CHAMBER LITIGATION KASDIN M. MITCHELL
CENTER LAURA E. WOLK
1615 H Street NW ELIZABETH HEDGES
Washington, DC 20062 KIRKLAND & ELLIS LLP
(202) 463-5337 1301 Pennsylvania Avenue NW
Washington, DC 20004
KAREN HARNED (202) 389-5000
ROB SMITH
NFIB SMALL BUSINESS LEGAL
CENTER
1201 F. St. NW #200
Washington, DC 20004
(202) 314-2061

April 9, 2021

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CERTIFICATE OF SERVICE
I hereby certify that on this 9th day of April, 2021, I electronically filed the

foregoing with the Clerk of the Court for the United States District Court for the

Southern District of Ohio using the CM/ECF system. I certify that all participants

in this case are registered CM/ECF users and that service will be accomplished by

the CM/ECF system.

s/Paul D. Clement
Paul D. Clement

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