Motion for Preliminary Injunction, State of West Virginia et al. v. U.S. Department of the Treasury, No. 7:21-cv-00465 (N.D. Ala.), Doc. 21 (April 13, 2021)
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Combined Opposed Motion for a Preliminary Injunction and Memorandum in Support of the Motion in State of West Virginia, et al. v. United States Department of the Treasury, et al., No. 7:21-cv-00465, filed April 13, 2021. The Plaintiff States state that the "Federal Tax Mandate" in the American Rescue Plan Act of 2021 infringes their sovereignty under the Tenth Amendment and exceeds Congress' authority under the Spending Clause. They move under Federal Rule of Civil Procedure 65 for an order enjoining the Defendants from enforcing it. The certificate of service dated April 13, 2021 lists mailing to Treasury and Justice Department officials and email to Stephen Ehrlich and an Assistant United States Attorney; /s Edmund G. LaCour Jr. signs for the State of Alabama.
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“Motion for Preliminary Injunction, State of West Virginia et al. v. U.S. Department of the Treasury, No. 7:21-cv-00465 (N.D. Ala.), Doc. 21 (April 13, 2021).”
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Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 1 of 43 FILED
2021 Apr-13 PM 05:12
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ALABAMA
WESTERN DIVISION
STATE OF WEST VIRGINIA, by and through
Patrick Morrisey, Attorney General of the State
of West Virginia; STATE OF ALABAMA, by
and through Steve Marshall, Attorney General of
the State of Alabama; STATE OF ARKANSAS,
by and through Leslie Rutledge, Attorney General
of the State of Arkansas; STATE OF ALASKA,
by and through Treg R. Taylor, Attorney General
of the State of Alaska; STATE OF FLORIDA, Case No. 7:21-cv-00465-GMB
by and through Ashley Moody, Attorney General
of the State of Florida; STATE OF IOWA;
STATE OF KANSAS, by and through Derek
Schmidt, Attorney General of the State of COMBINED OPPOSED
Kansas; STATE OF MONTANA, by and MOTION FOR A
through Austin Knudsen, Attorney General of the PRELIMINARY INJUNCTION
State of Montana; STATE OF NEW AND MEMORANDUM IN
HAMPSHIRE; STATE OF OKLAHOMA, by
SUPPORT OF THE MOTION
and through Mike Hunter, Attorney General of
the State of Oklahoma; STATE OF SOUTH
CAROLINA, by and through Alan Wilson,
Attorney General of the State of South Carolina;
STATE OF SOUTH DAKOTA, by and through
Jason R. Ravnsborg, Attorney General of the
State of South Dakota; and STATE OF UTAH,
by and through Sean Reyes, Attorney General of
the State of Utah,
Plaintiffs,
v.
UNITED STATES DEPARTMENT OF THE
TREASURY;
JANET YELLEN, in her official capacity as the
Secretary of the United States Department of the
Treasury; and
RICHARD K. DELMAR, in his official
capacity as acting inspector general of the
Department of the Treasury,
Defendants.
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 2 of 43
MOTION FOR A PRELIMINARY INJUNCTION
The “Federal Tax Mandate” in the American Rescue Plan Act of 2021, see
Pub. L. No. 117-2, § 9901, 135 Stat. 4 (enacting § 602(c)(2)(A) to the Social Security
Act (42 U.S.C. § 801 et seq.)), unconstitutionally infringes on the Plaintiff States’
sovereignty under the Tenth Amendment and exceeds Congress’ authority under the
Spending Clause in Article I, section 8. See U.S. Const. art. I, § 8, cl.1. Plaintiff
States therefore move under Federal Rule of Civil Procedure 65 for an order
preliminarily enjoining the Defendants from enforcing the Federal Tax Mandate.
Respectfully submitted:
/s/ Edmund G. LaCour Jr. /s/ Lindsay S. See
STEVE MARSHALL PATRICK MORRISEY
Alabama Attorney General West Virginia Attorney General
Edmund G. LaCour Jr. Lindsay S. See (pro hac vice)
Alabama Solicitor General West Virginia Solicitor General
James W. Davis David C. Tryon (pro hac vice)
A. Reid Harris Special Assistant to the
Assistant Attorneys General Attorney General
Office of the Alabama (Admitted in Ohio; practicing under
Attorney General supervision of W. Va. attorneys)
501 Washington Ave. Jessica A. Lee (pro hac vice)
P.O. Box 300152 Assistant Solicitor General
Montgomery, AL 36130 Office of the West Virginia
Tel: (334) 353-2196 Attorney General
edmund.lacour@alabamaAg.gov 1900 Kanawha Blvd. East
jim.davis@AlabamaAG.gov Building 1, Room E-26
reid.harris@AlabamaAG.gov Charleston, WV 25305
Counsel for State of Alabama Tel: (304) 558-2021
Lindsay.S.See@wvago.gov
Counsel for State of West Virginia
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 3 of 43
/s/ Nicholas Bronni
LESLIE RUTLEDGE
Arkansas Attorney General
Nicholas J. Bronni (pro hac vice)
Arkansas Solicitor General
Vincent M. Wagner (pro hac vice)
Deputy Solicitor General
Dylan L. Jacobs (pro hac vice)
Assistant Solicitor General
Office of the Arkansas
Attorney General
323 Center Street, Suite 200
Little Rock, Arkansas 72201
Tel: (501) 682-6302
nicholas.bronni@arkansasag.gov
Counsel for State of Arkansas
[Additional counsel listed at end]
ii
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 4 of 43
TABLE OF CONTENTS
STATEMENT...........................................................................................................3
LEGAL STANDARD...............................................................................................8
ARGUMENT............................................................................................................8
I. The Plaintiff States Are Likely To Succeed On The Merits Because
The Federal Tax Mandate Is Unconstitutional.....................................8
A. The Federal Tax Mandate Violates the Conditional
Spending Doctrine......................................................................8
B. The Federal Tax Mandate Violates the
Anticommandeering Doctrine...................................................21
II. The Plaintiff States Will Suffer Irreparable Injury Absent
An Injunction.......................................................................................28
III. Threatened Injury to the Plaintiff States Outweighs the Nonexistent
Harm To The Defendants And Promotes The Public Interest.............30
CONCLUSION........................................................................................................30
iii
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 5 of 43
TABLE OF AUTHORITIES
Page(s)
Cases
Abbott v. Perez,
138 S. Ct. 2305 (2018)........................................................................................28
Am. Civil Liberties Union of Ky. v. McCreary Cnty.,
354 F.3d 438 (6th Cir. 2003) ..............................................................................28
Benning v. Georgia,
391 F.3d 1299 (11th Cir. 2004) ........................................................11, 14, 19, 21
Cate v. Oldham,
707 F.2d 1176 (11th Cir. 1983) ..........................................................................28
Coal. to Defend Affirmative Action v. Granholm,
473 F.3d 237 (6th Cir. 2006) ..............................................................................30
Cunningham v. Adams,
808 F.2d 815 (11th Cir. 1987) ............................................................................28
Farrell v. Dep’t Of Interior,
314 F.3d 584 (Fed. Cir. 2002) ............................................................................15
Free Enterprise Fund v. Pub. Co. Acct. Oversight Bd.,
561 U.S. 477 (2010)..............................................................................................2
Friedenberg v. Sch. Bd. of Palm Beach Cnty.,
911 F.3d 1084 (11th Cir. 2018) ............................................................................8
Garcia v. San Antonio Metro. Transit Auth.,
469 U.S. 528 (1985)..............................................................................................1
Georgia v. Pruitt,
326 F. Supp. 3d 1356 (S.D. Ga. 2018) ...............................................................28
Graham Cnty. Soil & Water Conservation Dist. v. United States,
545 U.S. 409 (2005)......................................................................................11, 14
iv
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 6 of 43
TABLE OF AUTHORITIES
(continued)
Page(s)
Holder v. Humanitarian Law Project,
561 U.S. 1 (2010)................................................................................................12
Ivanhoe Irrigation Dist. v. McCracken,
357 U.S. 275 (1958)............................................................................................15
Jones v. Gov. of Fla.,
950 F.3d 795 (11th Cir. 2020) ............................................................................28
Kansas v. United States,
249 F.3d 1213 (10th Cir. 2001) ..........................................................................28
Lane Cnty. v. Oregon,
74 U.S. 71 (1868)................................................................................................23
Maryland v. King,
567 U.S. 1301 (2012) (Roberts, C.J., in chambers)............................................29
Massachusetts v. United States,
435 U.S. 444 (1978)............................................................................................20
Midrash Sephardi, Inc. v. Town of Surfside,
366 F.3d 1214 (11th Cir. 2004) ..........................................................................21
Murphy v. Nat’l Collegiate Athletic Ass’n,
138 S. Ct. 1461 (2018)........................................................................1, 21, 22, 24
Nat’l Fed’n of Indep. Bus. v. Sebelius,
567 U.S. 519 (2012)....................................................... 2, 8, 9, 10, 11, 22, 26, 27
Ne. Fla. Chapter of Ass’n of Gen. Contractors of Am. v. City of
Jacksonville, Fla.,
896 F.2d 1283 (11th Cir. 1990) ..........................................................................28
New York v. United States,
505 U.S. 144 (1992)..................................................... 1, 2, 11, 16, 23, 24, 25, 26
v
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 7 of 43
TABLE OF AUTHORITIES
(continued)
Page(s)
Printz v. United States,
521 U.S. 898 (1997)......................................................................................21, 24
Shelby Cnty. v. Holder,
570 U.S. 529 (2013)......................................................................................22, 23
South Dakota v. Dole,
483 U.S. 203 (1987)............................................................................9, 15, 19, 20
State v. Dep’t of Justice,
951 F.3d 84 (2d Cir. 2020) .............................................................................2, 26
Texas v. United States,
809 F.3d 134 (5th Cir. 2015) ..............................................................................28
Thomson v. Pac. R.R. Co.,
76 U.S. 579 (1869)..............................................................................................23
Util. Air Reg. Grp. v. EPA,
573 U.S. 302 (2014)............................................................................................15
Winter v. Nat’l Res. Def. Council,
555 U.S. 7 (2008)..................................................................................................8
Constitutional Provisions
U.S. Const. art. I., § 8, cl. 1........................................................................................2
U.S. Const. amend. X.................................................................................................1
Statutes
42 U.S.C. § 601........................................................................................................13
42 U.S.C. § 602(c) .................................................................... 2, 5, 6, 12, 16, 18, 19
42 U.S.C. § 603(c) ...............................................................................................6, 16
vi
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 8 of 43
TABLE OF AUTHORITIES
(continued)
Page(s)
Ala. Code § 40-2B-1 ................................................................................................24
Ala. Code § 40-2B-2 ................................................................................................24
America Rescue Plan of 2021,
Pub. L. No. 117-2 § 9621, 135 Stat. 4 ............................................................6, 17
America Rescue Plan of 2021,
Pub. L. No. 117-2 § 9673, 135 Stat. 4 ..................................................................6
America Rescue Plan of 2021,
Pub. L. No. 117-2 § 9901, 135 Stat. 4 ................................. 2, 5, 6, 12, 13, 16, 19
Coronavirus Aid, Relief, and Economic Security Act,
Pub. L. No. 116-136, 134 Stat. 281 ......................................................................3
Other Authorities
COVID Data Tracker, “Trends in Number of COVID-19 Cases and
Deaths in the US Reported to CDC, by State/Territory,” CDC ...........................3
“The American Rescue Plan Act of 2021 (H.R. 1319),” HOUSE
BUDGET COMMITTEE DEMOCRATIC CAUCUS.........................................................4
Kelly Allen et al., THE IMPACT OF THE COVID-19 PANDEMIC
IN WEST VIRGINIA IN 2020 23 (Feb. 17, 2021) ..............................................4
Lewis B. Kaden, Politics, Money, and State Sovereignty: The Judicial
Role, 79 Colum. L. Rev. 847, 896 (1979)...........................................................20
“State Actions to Close Budget Shortfalls in Response to COVID-19,”
NATIONAL CONFERENCE OF STATE LEGISLATURES ..............................................3
Testimony of Janet L. Yellen, Secretary, U.S. Department of the
Treasury Before the Committee on Banking, Housing, and Urban
Affairs United States Senate, 117th, Cong. 2 (Mar. 24, 2021) ...........................18
vii
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 9 of 43
TABLE OF AUTHORITIES
(continued)
Page(s)
“Testimony of Secretary Yellen before the Senate Banking Committee
in response to Sen. Mike Crapo,” at 1:11:47-1:12:12, UNITED
STATES COMMITTEE ON BANKING, HOUSING, AND
URBAN AFFAIRS (Mar. 24, 2021, 10:00 a.m.), ..............................................12
“Statement on State Fiscal Recovery Funds and Tax Conformity,”
U.S. DEPARTMENT OF TREASURY (Apr. 7, 2021) ................................................15
The Briefing Room, “Bill Signing: H.R. 1319,” THE WHITE HOUSE
(Mar. 11, 2021) .....................................................................................................4
viii
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 10 of 43
MEMORANDUM IN SUPPORT OF THE MOTION
Congress cannot coerce the States into not exercising one of their core
constitutional functions. It is an elementary precept of American civics that “[t]he
Constitution . . . did not abolish the sovereign powers of the States.” Murphy v.
Nat’l Collegiate Athletic Ass’n, 138 S. Ct. 1461, 1475 (2018). The Tenth
Amendment expressly reserves for the States all “powers not delegated to the United
States by the Constitution, nor prohibited by it.” U.S. Const. amend. X. Thus, States
“unquestionably” retain “a significant measure of sovereign authority,” subject only
to the express and limited carve outs they ceded to the federal government. Garcia
v. San Antonio Metro. Transit Auth., 469 U.S. 528, 549 (1985) (quotation omitted).
One power the Constitution did not grant to the federal government is “the
power to issue direct orders to the governments of the States.” Murphy, 138 S. Ct.
at 1476. Indeed, the Framers disavowed an alternate structure that would have
allowed Congress to do so. New York v. United States, 505 U.S. 144, 163 (1992)
(quotation omitted). So there is no doubt that “Congress may not . . . commandee[r]
the legislative processes of the States by directly compelling them to enact and
enforce a federal regulatory program.” Id. at 161 (quotation omitted).
The prohibition against state tax reductions in the American Rescue Plan Act
of 2021 (“ARPA”) is a historic attempt by Congress to do just that. ARPA
conditions pandemic relief funds on a State’s willingness to cede its sovereign power
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 11 of 43
to adopt any “change in law, regulation, or administrative interpretation” that
reduces income to the State—“either directly or indirectly”—for a period of over
three years. ARPA, Pub. L. No. 117-2 § 9901, 135 Stat. 4 (enacting 42 U.S.C. §
602(c)(2)). In other words, this “Federal Tax Mandate” seizes taxing authority by
forbidding States from reducing taxes at all for multiple years. The “lack of
historical precedent” for a new assertion of federal power is “[p]erhaps the most
telling indication” of a “severe constitutional problem.” Free Enterprise Fund v.
Pub. Co. Acct. Oversight Bd., 561 U.S. 477, 505 (2010) (quotation marks omitted).
ARPA’s novel prohibition proves this rule.
Improperly blurring “the constitutional line between federal and state power”
can be both direct and indirect. New York, 505 U.S. at 155. One example is where
Congress transforms its authority under the Spending Clause to “provide for the . . .
general welfare,” U.S. Const. art. I., § 8, cl. 1, into an assertion of “power akin to
undue influence.” Nat’l Fed’n of Indep. Bus. v. Sebelius (“NFIB”), 567 U.S. 519,
577 (2012) (op. of Roberts, C.J.) (quotation omitted). Just as Congress cannot
“commandeer[] . . . reserved State power” outright, it also cannot more subtly
infringe on state sovereignty by packaging its dictates in a spending program. State
v. Dep’t of Justice, 951 F.3d 84, 115 (2d Cir. 2020). Viewed as a violation of either
the conditional spending doctrine or anticommandeering principles, the Federal Tax
Mandate falls on the wrong side of the enumerated powers line.
2
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 12 of 43
STATEMENT
1. The COVID-19 pandemic continues to exact a global toll in both human
and economic terms. Between just the filing of the Complaint and of this motion,
the number of cases in the United States has increased by nearly 1,000,000 and the
number of deaths by 13,000.1 And the pandemic has caused drastic and ongoing
economic harm to individuals, businesses, States, and local governments. Over the
past year the Plaintiff States have weathered significant jumps in unemployment and
loss of income; some have been required to draw on state-budget reserve funds to
make up for resulting shortfalls, and others have made difficult decisions to cut
budgets for even critical programs like education and departments of corrections.2
To ease the financial strain on States and their residents, in 2020 Congress
provided $150 billion in direct assistance for state, local, and Tribal governments
under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). See
Pub. L. No. 116-136, 134 Stat. 281. The relief funds boosted state economies—but
the effects did not always last. For example, “as time passed since the stimulus
1
See COVID Data Tracker, “Trends in Number of COVID-19 Cases and Deaths in the US
Reported to CDC, by State/Territory,” CDC, https://covid.cdc.gov/covid-data-tracker/#trends_
totalandratecasessevendayrate (last updated Apr. 11, 2021).
2
See “State Actions to Close Budget Shortfalls in Response to COVID-19,” NATIONAL
CONFERENCE OF STATE LEGISLATURES, https://app.powerbi.com/view?r=eyJrIjoiZj
hmODk1MjctOTc3Ni00MDE3LTgyNGUtZjNkYTk3NTQ1OTU5IiwidCI6IjM4MmZiOGIwLT
RkYzMtNDEwNy04MGJkLTM1OTViMjQzMmZhZSIsImMiOjZ9 (last accessed April 13,
2021).
3
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 13 of 43
payments were distributed . . . West Virginia’s economy began to slow” and the
State saw more lost jobs in fall 2020.3 Other States had similar experiences. See
Compl. ¶¶ 32-36.
2. On March 11, 2021, President Biden signed ARPA, appropriating further
significant economic funding, tax relief, and other forms of pandemic-related aid.
Pub. L. No. 117-2, 135 Stat. 4. The House Budget Committee Democratic Caucus
explained that ARPA “is the next step forward for delivering crucial relief to the
American people.”4 The White House likewise described its purpose as “provid[ing]
additional relief to address the continued impact of the COVID-19 pandemic on the
economy, public health, state and local governments, individuals, and businesses.”5
ARPA allocates approximately $1.9 trillion for these purposes. Roughly
$219.8 billion is tapped for the States. These funds represent an average of about
25% of the Plaintiff States’ annual budgets. Compl. ¶¶ 45-57. The precise amount
varies for each of the Plaintiff States, but most are over 20%. Compl. ¶ 118.
3
Kelly Allen et al., THE IMPACT OF THE COVID-19 PANDEMIC IN WEST VIRGINIA IN
2020 23 (Feb. 17, 2021), available at https://wvpolicy.org/wp-content/uploads/2021/02/WVCBP-
COVID-Impact-Report.pdf.
4
“The American Rescue Plan Act of 2021 (H.R. 1319),” HOUSE BUDGET COMMITTEE
DEMOCRATIC CAUCUS, https://budget.house.gov/american-rescue-plan-act-2021-hr-1319
(last accessed Apr. 13, 2021).
5
The Briefing Room, “Bill Signing: H.R. 1319,” THE WHITE HOUSE (Mar. 11, 2021),
https://www.whitehouse.gov/briefing-room/legislation/2021/03/11/bill-signing-h-r-
1319/#:~:text=signed%20into%20law%3A-
,H.R.,governments%2C%20individuals%2C%20and%20businesses (last accessed Apr. 13, 2021).
4
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 14 of 43
Congress specified that States must use ARPA funds to respond to the
negative economic impacts of COVID-19 in one of four specific ways: (1) providing
assistance to “households, small businesses, and nonprofits” and “impacted
industries such as tourism, travel, and hospitality”; (2) responding “to workers
performing essential work during the COVID-19 public health emergency by
providing premium pay to eligible workers”; (3) making up for pandemic-related
reductions in state government revenue; and (4) paying for “necessary investments
in water, sewer, or broadband infrastructure.” ARPA § 9901 (enacting 42 U.S.C.
§ 602(c)(1)(A-D)).
In addition to specifying affirmative uses for the funds, Congress also
prohibited some uses. Relevant here, Section 602(c)(2)(A)—the Federal Tax
Mandate—provides:
(2) FURTHER RESTRICTION ON USE OF FUNDS.—
(A) IN GENERAL.—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.
(B) PENSION FUNDS.—No State or territory may use funds made
available under this section for deposit into any pension fund.
ARPA § 9901 (enacting 42 U.S.C. § 602(c)(2)). The phrase “directly or indirectly
offset” is not defined. Nor did Congress extend this prohibition to cities, localities,
5
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 15 of 43
or Tribal governments. Id. (enacting 42 U.S.C. § 603(c)). And in other sections of
ARPA, Congress enacted federal tax relief. See, e.g., ARPA §§ 9621 (expanding
earned income tax credit), 9673 (exempting small business revitalization funds).
The Federal Tax Mandate’s statutory coverage period runs from March 3,
2021, to the last day of the last fiscal year in which a State receives funds under
ARPA. This could be as late as December 31, 2024, the date through which funds
are available, or even longer if the Department of the Treasury (“Treasury”) seeks
recovery of funds. See ARPA § 9901 (enacting 42 U.S.C. § 602(g)(1)).
ARPA also requires States to periodically report to Treasury any reductions in
their tax receipts. Treasury can recoup funds that it interprets were used in violation
of the Federal Tax Mandate. See ARPA § 9901 (enacting 42 U.S.C. § 602(g)(1)).
3. Most, if not all, of the Plaintiff States are or were actively considering
various forms of tax relief for individuals and small businesses, whether directly
related to state pandemic-relief efforts or through unrelated policy measures.
Compl. ¶¶ 76-83. The Federal Tax Mandate has cast significant uncertainty over
these efforts as it is unclear whether States can pass any tax relief measures
throughout the covered period without running afoul of the Federal Tax Mandate.
On March 16, 2021, twenty-one state Attorneys General sent a letter to
Treasury Secretary Janet Yellen (“Secretary”) seeking clarification on the
application of the Federal Tax Mandate. Ex. A. The Attorneys General expressed
6
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 16 of 43
concern about the mandate’s ambiguity and apparently broad scope, and asked
whether several specific examples of current tax proposals across the country were
permissible under the Federal Tax Mandate. Ex. A at 2-4.
The Secretary responded on March 23, 2021. Ex. B. She denied that ARPA
“prevents States from enacting a broad variety of tax cuts,” and argued instead that
“[i]t simply provides that funding received under the Act may not be used to offset
a reduction in net tax revenue resulting from certain changes in state law.” Ex. B at
1. “If States lower certain taxes but do not use funds under the Act to offset those
cuts—for example, by replacing the lost revenue through other means—the
limitation in the Act is not implicated.” Id.
The Secretary’s response did not explain what Treasury would deem sufficient
to make up “lost revenue through other means.” Nor did it define or set meaningful
limits for the term “directly or indirectly offset,” much less explain how Treasury
would derive those boundaries from the statutory text. And it did not respond to the
States’ questions regarding the multiple specific tax modification proposals pending
in various States. The Secretary noted that Treasury would provide additional
guidance in the future.
The Secretary’s response did not resolve the Plaintiff States’ questions about
the Federal Tax Mandate’s meaning and limits, nor resolve their concerns about its
significant infringement into their sovereign taxing powers. This suit followed. And
7
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in light of the critical need for ARPA funding now—not months in the future when
additional guidance may (or more likely, may not) resolve the Plaintiff States’
concerns—they now seek a preliminary injunction to bar enforcement of the Federal
Tax Mandate.
LEGAL STANDARD
“A preliminary injunction may be entered when a plaintiff establishes four
elements: (1) a substantial likelihood of success on the merits; (2) a substantial
threat of irreparable injury; (3) that the threatened injury to the plaintiff outweighs
the potential harm to the defendant; and (4) that the injunction will not disserve the
public interest.” Friedenberg v. Sch. Bd. of Palm Beach Cnty., 911 F.3d 1084, 1090
(11th Cir. 2018) (quotation omitted); see also Winter v. Nat’l Res. Def. Council,
555 U.S. 7, 20 (2008). The Court should preliminarily enjoin the Federal Tax
Mandate for, at minimum, the Plaintiff States, as they satisfy each element here.
ARGUMENT
I. The Plaintiff States Are Likely To Succeed On The Merits Because
The Federal Tax Mandate Is Unconstitutional.
A. The Federal Tax Mandate Violates The Conditional Spending
Doctrine.
Congress’ spending powers permit it to place some restrictions on the States
as conditions for receiving federal funds that Congress may not otherwise impose
on the States. Nat’l Fed’n of Indep. Bus. v. Sebelius (“NFIB”), 567 U.S. 519, 576
(2012) (op. of Roberts, C.J.). But this power is far from unlimited. Stipulations on
8
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 18 of 43
the use of federal funds exceed Congress’ spending power unless they meet all of
the following conditions: (1) the expenditure must benefit the general welfare;
(2) any condition must be unambiguous; (3) any condition must be reasonably
related to the grant’s purpose; (4) the grant and any conditions attached to it cannot
violate an independent constitutional provision; and (5) the grant cannot amount to
coercion as opposed to encouragement. South Dakota v. Dole, 483 U.S. 203, 207-
08 (1987). Though ARPA may advance the general welfare, the Federal Tax
Mandate is unconstitutional because it violates every other Dole factor.
1. The Federal Tax Mandate Is Unconstitutionally Coercive.
To begin, the Federal Tax Mandate must fall because the amount of funding
is so large a percentage of the Plaintiff States’ budgets that they have no real choice
but to accept its restriction on their sovereign powers.
“When a heavy federal tax is levied to support a federal program that offers
large grants to the States, States may, as a practical matter, be unable to refuse to
participate in the federal program and to substitute a state alternative.” NFIB, 567
U.S. at 680 (Scalia, J., with Kennedy, Thomas, and Alito, JJ., dissenting). As a
plurality of the Court explained in NFIB, this is constitutionally impermissible
coercion. NFIB flowed from Congress’ decision to condition Medicaid funding on
the State’s willingness to expand Medicaid coverage—a “threatened loss of over 10
percent of a State’s overall budget.” Id. at 581-82 (plurality op.). This amount meant
9
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 19 of 43
the funding was not “relatively mild encouragement,” but “a gun to the head.” Id.
at 581. Thus the Court found the legislation markedly different from the law Dole
approved, where if States refused to raise the drinking age to 21, they were
threatened with loss of less than half of one percent of their budgets. Id.
When it comes to conditional funding, the Federal Tax Mandate—as in
NFIB—is a “shift in kind, not merely degree.” See 567 U.S. at 583. It uses the
financial needs of the Plaintiff States and their citizens stemming from an ongoing
global pandemic to compel them to abrogate sovereign tax authority for potentially
more than three years. Only the federal government can quickly borrow the massive
sums of money allocated through ARPA. And the sums are massive. In Arkansas,
for instance, anticipated ARPA funding represents 29% of the State’s annual budget.
Compl. ¶ 117. For many other Plaintiff States it constitutes roughly a quarter of
their annual budgets. Compl. ¶ 117-19. Thus, the only choices for the States are to
accept the money with strings attached or let their citizens continue to suffer. While
that may be a choice “in theory,” it is not one “in fact.” NFIB, 567 U.S. at 581
(plurality op.).
The Supreme Court in NFIB did not set a bright line for the constitutionality
of spending programs, but “wherever that line may be,” the Federal Tax Mandate “is
surely beyond it.” 567 U.S. at 585 (plurality op.). If conditioning 10% of a State’s
budget on compliance with federal conditions is coercion, id. at 581-82, it is much
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more so here. The “financial inducement” from ARPA’s mammoth funding
provisions, offered during a once-in-a-century pandemic, leaves States with no
meaningful way to “defend their prerogatives” through a “legitimate choice” to say
“no thanks.” Id. at 577-79. Put simply, “Congress has ‘crossed the line
distinguishing encouragement from coercion,’” Id. at 579 (quoting New York v.
United States, 505 U.S. 144, 175 (1992)), and any argument to the contrary “ignores
reality.” Id. at 680 (Scalia, J., with Kennedy, Thomas, and Alito, JJ., dissenting).
2. The Federal Tax Mandate Is Unconstitutionally Ambiguous.
Congress must “speak with a clear voice” “[i]f [it] intends to impose a
condition on the grant of federal moneys”—that is, “it must do so unambiguously.”
Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 17 (1981). This
requirement means that Congress must “define those conditions clearly enough for
the states to make an informed choice.” Benning v. Georgia, 391 F.3d 1299, 1306
(11th Cir. 2004) (citing Penhurst, 451 U.S. at 25). Congress neglects this duty when
a provision’s “text, literally read, admits of two plausible interpretations.” Graham
Cnty. Soil & Water Conservation Dist. v. United States, 545 U.S. 409, 419 n.2
(2005). The Federal Tax Mandate is an example of such neglect.
In recent testimony before Congress, the Secretary acknowledged this
ambiguity when asked how Treasury would “approach the question of what
indirectly or directly offsets a tax cut?” She admitted this is a “thorny” issue, and
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“[g]iven the fungibility of money, it’s a hard question to answer.”6 Her logic is not
hard to follow. Congress did not define what it means to “directly or indirectly”
offset tax cuts, but gave the Secretary authority to claw back funds Treasury suspects
were used as a direct or indirect offset. See ARPA § 9901 (enacting 42 U.S.C. §
602(e)). Yet because “[m]oney is fungible,” see Holder v. Humanitarian Law
Project, 561 U.S. 1, 37 (2010), any ARPA funds the Plaintiff States receive could be
viewed as indirectly offsetting any reduction in tax revenue from a change in state
law or policy. After all, a decrease in one part of a State’s revenue is necessarily
offset somehow to achieve a balanced budget.
The Secretary tried to assure the Plaintiff States that satisfying the Federal Tax
Mandate is as “simpl[e]” as asking whether a State replaced lost revenue with ARPA
funds or through other means. See Ex. B at 2. But how can the Plaintiff States know
whether the Secretary will point to ARPA funds as those “other means” to account
for any revenue shortfall during the covered period—especially given ARPA’s
insistence that indirect offsets are just as verboten as more obvious, direct action?
The Plaintiff States have no assurance the Secretary will accept their representation
6
“Testimony of Secretary Yellen before the Senate Banking Committee in response to Sen. Mike
Crapo,” at 1:11:47-1:12:12, UNITED STATES COMMITTEE ON BANKING, HOUSING, AND URBAN
AFFAIRS (Mar. 24, 2021, 10:00 a.m.), available at https://www.banking.senate.gov
/hearings/03/17/2021/the-quarterly-cares-act-report-to-congress.
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that they offset revenue loss with another source of funding, for instance, or that they
decided not to replace a reduction because the State ran a surplus the year before.
Consider the following scenario:
A State applies for and receives $50,000,000 to pay for broadband
infrastructure improvements consistent with ARPA’s purpose to fund
“necessary investments in water, sewer, or broadband infrastructure.”
ARPA § 9901 (enacting 42 U.S.C. § 601(c)(1)(D)).
The State also passes several tax credits, including for foster parents,
entities that invest in community improvement projects, and businesses
that bought new equipment to provide safe and efficient customer
service during the pandemic. Together, these credits result in a revenue
decrease of approximately $55,000,000.
Did the State use ARPA funds for broadband infrastructure, or to offset tax credits?
Investment in broadband is indisputably a covered purpose, but the similar
dollar amounts could suggest that the State only “afforded” the tax credits because
ARPA funding paid for another pressing state need. Would it matter if the decrease
in tax revenue were only $10,000,000? The Secretary might demand $10,000,000
back from the State’s ARPA allocation on the theory that it indirectly offset the tax
credits, but the quite different dollar amounts could also indicate that the expenditure
and tax credits are separate. Or does the analysis depend on whether the tax cuts
took effect before the State received its ARPA check? If before, tax cuts may have
reflected a policy decision that returning money to taxpayers was the State’s most
urgent economic need, even at the expense of delaying broadband investment. If the
State later received and used the ARPA infrastructure grant, did the State offset its
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earlier tax cuts, or seize an unexpected chance to advance both goals at once instead
of waiting potentially years for the second? In these and many other iterations, the
text yields “two plausible interpretations.” Graham, 545 U.S. at 419 n.2.
Importantly, these are not just hypotheticals. The States’ letter to Treasury
outlined several proposals for tax relief that legislatures are considering this year—
and it is unclear whether any or all might run afoul of the Federal Tax Mandate. Ex.
A at 2-4; see also Compl. ¶¶ 76-83. Further complicating the situation, budget
projections are never foolproof. A State could find itself subject to a recoupment
action even if it never intended or expected revenues to decrease as the result of a
change in law, regulation, or practice.
It is thus impossible for the Plaintiff States to “make an informed choice” how
to exercise their taxing authority without putting ARPA funding at risk. Benning,
391 F.3d at 1306. If the best interpretation is that the Federal Tax Mandate covers
every change that leads to decreased revenue, then Congress passed a statute with
startling breadth and the constitutional concerns are all the more severe. And if that
is not what Congress intended, how can States know where the line actually lies?
Nothing in the statutory text answers when “indirect” dwindles to “nonexistent.”
Nor can guidance from Treasury salvage an unconstitutionally vague law. At
most, the forthcoming guidance may try to graft extra-textual limits onto the Federal
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Tax Mandate.7 But that guidance may or may not bind Treasury in an enforcement
action, see, e.g., Farrell v. Dep’t Of Interior, 314 F.3d 584, 590 (Fed. Cir. 2002),
and Treasury could always reverse its position. Moreover, the Constitution requires
Congress to be the one speaking with a clear voice where traditional state powers
are at stake. Pennhurst, 451 U.S. at 17. In areas of “vast economic and political
significance”—like restricting taxing powers for every State in the nation—
Congress must “speak clearly” when delegating to an implementing agency. Util.
Air Reg. Grp. v. EPA, 573 U.S. 302, 324 (2014) (citation omitted). The “thorny
issue” Congress created in ARPA is the opposite of that clarity.
3. The Federal Tax Mandate Is Not Reasonably Related To
ARPA’s Purpose.
The Federal Tax Mandate also coerces state participation without being
reasonably related to the purpose ARPA serves. Dole’s requirement that spending
conditions be germane to the purposes of the grant, 483 U.S. at 208, demands
relevance “to federal interest in the project and to the over-all objectives.” Ivanhoe
Irrigation Dist. v. McCracken, 357 U.S. 275, 295 (1958). “[O]therwise, of course,
7
Treasury recently indicated an intent to adopt a construction of ARPA under which a State can
make changes to its tax policy to mirror certain features of federal tax policy. See “Statement on
State Fiscal Recovery Funds and Tax Conformity,” U.S. DEPARTMENT OF TREASURY (Apr. 7,
2021), https://home.treasury.gov/news/press-releases/jy0113. Treasury did not identify any
textual hook for its guidance, and the narrow concession to the States is cold comfort. Indeed, a
State being told it is “free” to adopt federal policy preferences underscores ARPA’s constitutional
flaws.
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the spending power could render academic the Constitution’s other grants and limits
of federal authority.” New York, 505 U.S. at 167.
ARPA’s purpose is in its name: the “American Rescue Plan Act.” It was
created and promoted as a plan to assist in the rebound from the pandemic’s
economic devastation. This purpose plays out in the four categories where Congress
affirmatively authorized state spending—on financially impacted households and
businesses, essential worker compensation, lost state government revenue, and
infrastructure investment. ARPA § 9901 (enacting 42 U.S.C. § 602(c)(1)(A-D)).
Prohibiting tax reductions does not advance ARPA’s goal of providing
meaningful relief to individuals and entities affected by the pandemic. Congress left
state tax increases perfectly acceptable, after all, and while a federal prohibition on
raising taxes would likely be unconstitutional too, it would at least be germane to
the purpose of providing needed economic relief. Broadly constricting States’ taxing
authority in the opposite direction—both directly and indirectly, and for multiple
years to come—is not.
First, the Court need not look further than Congress’ own actions in ARPA to
see that the Federal Tax Mandate is not reasonably related to the statute’s purposes.
Congress does not bar localities and Tribal governments from using ARPA funds to
offset tax relief, see ARPA § 9901 (enacting 42 U.S.C. § 603(c)), which casts doubt
on the premise that prohibiting tax relief serves ARPA’s overall goals. Further,
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Congress itself cut taxes under ARPA. See, e.g., ARPA §§ 9621 (expanding earned
income tax credit), 9673 (exempting small business revitalization funds). In doing
so, it necessarily agreed that tax cuts can also provide “rescue” as an effective and
important form of COVID-19 relief. Far from being germane to ARPA’s purposes,
disabling States from doing the same thus undercuts Congress’ own goals.
Second, the Federal Tax Mandate is wildly over-inclusive. By dictating what
States can do not only with ARPA funding but also other state funds, the mandate
affects all state legislative or executive actions that reduce net tax revenues,
regardless of their purpose. This scope exceeds any rational purpose Congress may
have had in mind. Indeed, it is not difficult to envision tax cuts that comprise part
of a State’s deliberate and comprehensive pandemic recovery plan. A State might
spend all of its allocated ARPA funds on the statute’s four spending categories, for
instance, and also enact a slate of long-term plans designed to address increased
unemployment and stagnant business growth in a post-COVID-19 economic
landscape. This plan could include tax credits for companies relocating to the State,
as well as significantly reduced income taxes for small businesses with revenues
below a certain threshold or that are located in federally designated Qualified
Opportunity Zones. Nothing in this plan would undermine ARPA’s purpose. Quite
the opposite. Yet the Federal Tax Mandate’s “indirect” prohibition could trigger a
claw back of ARPA funds if the State’s revenues decrease in the short term.
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Examples from economically identical scenarios further demonstrate the
tenuous (at best) connection between a state tax-cut freeze and the goal of providing
critical relief to Americans suffering economic harm from the pandemic:
Suppose two States each decide to use ARPA funds, as the statute
permits, “to provide assistance to households, small businesses, [and]
non-profits.” § 601(c)(1)(A).
The first State sends $1000 checks to every household and small
business in the State, which recipients can use as they wish.
The second State determines that mailing individual checks is not
efficient,8 and instead grants every household and business in the State
a one-time $1000 tax credit.
The result of each scenario is the same—households and small businesses receive
the type of meaningful financial relief Congress envisioned, and the State used
ARPA funds to make it happen. In the second scenario, however, the State’s
revenues decrease and ARPA funds make up the difference. That feature is the
difference between using funds as Congress expressly provided and subjecting the
State to a demand to reimburse the federal government for the entire cost of the
program—although the Federal Tax Mandate’s boundaries are ambiguous, this type
of program appears to fall squarely within its reach. Prohibiting States from
choosing between functionally identical economic relief policies makes the Federal
8
In her prepared remarks during her testimony to Congress, the Secretary emphasized the
importance of “making sure that assistance flows as efficiently as possible.” Testimony of Janet
L. Yellen, Secretary, U.S. Department of the Treasury Before the Committee on Banking, Housing,
and Urban Affairs United States Senate, 117th Cong. 2 (Mar. 24, 2021), available at
https://www.banking.senate.gov/imo/media/doc/Yellen%20Testimony%203-24-21.pdf.
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Tax Mandate look more like an exercise in commandeering for commandeering’s
sake, rather than a reasonable condition to safeguard ARPA’s purposes.
Third, the Federal Tax Mandate is also under-inclusive—again highlighting
its tension with ARPA’s purposes. As noted, although ARPA authorizes funding
for States, territories, Tribal governments, and localities, the Federal Tax Mandate
applies to States and territories only. If tax relief threatens ARPA’s purposes when
enacted by a State, why is the same not true for a city? Similarly, the pension
provision bars direct “deposit[s] into any pension fund,” but evinces no concern
about States using ARPA funds to shore up their pension funds indirectly. ARPA §
9901 (enacting 42 U.S.C. § 602(c)(2)(B)). Yet the concern that indirect tax offsets
could thwart Congress’ purpose of focused COVID-19 relief should apply to other
(expensive) state-budget offsets too. The pension provision immediately follows the
Federal Tax Mandate, and the juxtaposition of their phrasings show that the latter is
not reasonably related to the purpose of the funds. See Dole, 483 U.S. at 207. If
anything, it appears to be a pretext for placing off limits certain disfavored exercises
of state taxing and revenue-allocation powers, rather than reflecting an evenhanded
concern that funds be used for the specific purposes Congress chose.
Finally, Congress’ decision to infringe a traditional state power—and area
where Congress does not have a “substantial interest,” Benning, 391 F.3d at 1307—
shortens any leeway it might otherwise have when setting funding conditions. See
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id. (rejecting rational relation argument where federal government has “a substantial
interest” in ensuring that federally funded prisons protect civil rights). This is
because where Congress tries to interfere with “state autonomy,” courts “may
properly oblige Congress to demonstrate that the requirement is related to the
achievement of an important governmental objective.” Lewis B. Kaden, Politics,
Money, and State Sovereignty: The Judicial Role, 79 Colum. L. Rev. 847, 896
(1979); cf. Massachusetts v. United States, 435 U.S. 444, 461-62 (1978) (noting that
the condition “effects no greater interference with state sovereignty than do the
restrictions which this Court has approved”). Thus, if there is any doubt whether the
Federal Tax Mandate is germane to ARPA’s purposes, the novelty and highly
invasiveness of this condition supports resolving the question in favor of the Plaintiff
States.
4. The Federal Tax Mandate Violates The Tenth Amendment.
Finally, the Federal Tax Mandate fails the last Dole factor by violating an
independent constitutional provision, 483 U.S. at 207-08—here, the Tenth
Amendment’s reservation of powers to the States. The Tenth Amendment stands as
an “independent bar” to the Federal Tax Mandate, id. at 208, because as discussed
in Part I.B. below, the Federal Tax Mandate impermissibly commandeers the States’
taxing authority to serve the federal government’s ends. No constitutional provision
gives Congress power to interfere with state sovereignty in this way. Cf. Midrash
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Sephardi, Inc. v. Town of Surfside, 366 F.3d 1214, 1242 (11th Cir. 2004) (“RLUIPA
does not violate principles of federalism if it is otherwise grounded in the
Constitution.”); Benning, 391 F.3d at 1308 (same).
* * *
In sum, while Congress exercised its spending power for the public welfare
through ARPA, adding the Federal Tax Mandate makes it flunk every other factor
of Dole. The Plaintiff States are thus likely to succeed on the merits of their
challenge on Count I. Compl. ¶¶ 101-22.
B. The Federal Tax Mandate Violates The Anticommandeering
Doctrine.
Although the “anticommandeering doctrine may sound arcane,” it serves the
important function of safeguarding “a fundamental structural decision incorporated
into the Constitution, i.e., the decision to withhold from Congress the power to issue
orders directly to the States.” Murphy, 138 S. Ct. at 1475. The federal government,
after all, “may act only where the Constitution authorizes it to do so.” Printz v.
United States, 521 U.S. 898, 937 (1997) (citation omitted).
Further, “[s]tate sovereignty is not just an end in itself”; honoring “federalism
secures to citizens the liberties that derive from the diffusion of sovereign power.”
NFIB, 567 U.S. at 536 (citation omitted); see also The Federalist No. 45 (J. Madison)
(explaining that federalism helps ensure that powers which “in the ordinary course
of affairs, concern the lives, liberties, and properties of the people” were held by
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locally accountable leaders). The Constitution’s division of federal-state powers,
including the anticommandeering doctrine, thus ultimately exists “for the protection
of individuals.” Murphy, 138 S. Ct. at 1477 (citations omitted).
Anticommandeering applies to both affirmative and negative commands:
Directives not to act are still “direct orders to state legislatures.” See, e.g., Murphy,
138 S. Ct. at 1478. And federal orders to the States—like the Federal Tax
Mandate—are unconstitutional under the anticommandeering doctrine where they
implicate either of two concerns. First, because the doctrine serves as “one of the
Constitution’s structural protections of liberty,” it applies where federal action
threatens the “healthy balance of power between the States and the Federal
Government.” Id. at 1477. Second, it “promotes political accountability” by
keeping decisions that affect the States in the hands of state leaders. Id. (citations
omitted). The Federal Tax Mandate upsets both interests.
1. The Federal Tax Mandate Violates State Sovereignty.
To begin, the Federal Tax Mandate unconstitutionally commandeers one of the
most “sensitive areas of state . . . policymaking.” Shelby Cnty. v. Holder, 570 U.S.
529, 545 (2013). Shelby dealt with the power “to regulate elections” which “the
Framers of the Constitution intended the States to keep for themselves.” Id. at 530.
So too for the States’ power to tax and spend—or as here, not to do so.
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Taxation is an “indispensable” power of the states. Lane Cnty. v. Oregon, 74
U.S. 71, 76 (1868). The States have always retained their “original” sovereign right
to determine their own taxation and fiscal policies, which represents an important
structural check on the federal government. Thomson v. Pac. R.R. Co., 76 U.S. 579,
591 (1869). Taxing authority is, of course, critical to the budgeting function for the
Plaintiff States’ legislatures. Everything a State does depends on the ability to tax,
or not tax; every service a State’s residents receive from the State depends on it; and
those residents are keenly interested in the amount of taxes they will pay. The
Framers thus recognized that “a law for abrogating or preventing the collection of a
tax laid by the authority of the State . . . would not be the supreme law of the land,
but a usurpation of power not granted by the Constitution.” The Federalist No. 33
(A. Hamilton).
Congress thus does not have power to “compel States” to pass or refrain from
passing tax policies according to its views. New York, 505 U.S. at 162. This is why
the Federal Tax Mandate represents an extraordinary shift in the state-federal power
balance. It is not an ordinary funding condition, but an attempt to gain the States’
power to enact local tax policy by coercing them to release it for the sake of needed
pandemic relief funds.9 This encroachment is “fundamentally incompatible with our
9
Moreover, Congress’ intrusion goes beyond state legislatures to also prohibit any “administrative
interpretation” that decreases tax revenue. This too would pose far-reaching consequences. For
example, the Alabama Tax Tribunal is a state agency that “resolve[s] disputes between the
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constitutional system of dual sovereignty.” Printz, 521 U.S. at 935. It breaks the
constitutional line between enumerated and reserved powers, and as such, the
Federal Tax Mandate violates the first principle of the anticommandeering doctrine.
2. The Federal Tax Mandate Blurs Political Accountability.
When Congress passes laws that regulate or tax the American people directly,
it is clear that Congress bears the responsibility for their benefits and burdens.
Voters who like or dislike congressional actions “know who to credit or blame.”
Murphy, 138 S. Ct. at 1477. So too for ordinary state legislation; voters know which
leaders are responsible for policies they like (or not), and can make that preference
known at the polls. By contrast, if a State imposes taxes or regulations only because
it has been commanded to do so by Congress, responsibility is blurred. See New
York, 505 U.S. at 168-69.
The Federal Tax Mandate creates this trap for the Plaintiff States by setting up
a Catch-22. It effectively mandates, as federal policy, the minimum taxes that States
may impose on their people for the next three years. If the States refuse their
allocated ARPA funds in order to continue to control their taxing authority, the
taxpayers do not receive the significant benefits from the federal law—and the
States’ leaders will be blamed. Taxpayers in every State will ultimately be on the
Department of Revenue and taxpayers.” Ala. Code §§ 40-2B-1, 40-2B-2(a). By ARPA’s plain
language, the Alabama Tax Tribunal would be restricted from interpreting Alabama law in a way
that results in a tax decrease for an Alabama taxpayer.
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hook for the billions in federal ARPA funds, and if a State declines its share of the
$219.8 billion ARPA designates to return to the States, its taxpayers will still foot
ARPA’s bill for years to come. But if a State elects to receive ARPA funds in light
of these and other concerns, they are required to give up the ability to enact tax policy
that can give their residents needed economic relief in other forms through tax-relief
policies. Yet the political actor actually responsible for this outcome, Congress, is
insulated from accountability, and again state leaders find themselves in the
crosshairs.
The result is that “elected state officials cannot regulate in accordance with the
views of the local electorate.” New York, 505 U.S. at 169. Because of this confused
situation, political accountability becomes distorted even beyond what the Supreme
Court imagined in Murphy. Accordingly, the Federal Tax Mandate violates this
structural principle and is an example of unconstitutional commandeering.
3. The Spending Clause Is Not A Bypass For The
Anticommandeering Doctrine.
Finally, Congress’ choice to house the Federal Tax Mandate in a spending
provision cannot paper over its constitutional flaws. To be sure, Congress is
permitted to impose certain conditions on federal funding programs, provided it
abides by the standards set forth in Dole. Yet the conditional spending doctrine is
not divorced from principles of anticommandeering as Congress can still
impermissibly commandeer the States through its spending authority. As the
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Supreme Court in New York explained, the Spending Clause is one permissible
“method” Congress uses to “urge a State to adopt a legislative program consistent
with federal interests”; commandeering is an impermissible one. 505 U.S. at 166.
As a result, “where Congress places conditions on a State’s receipt of federal
funds—whether directly, or by delegation of clarifying authority to an executive
agency—there is no commandeering of reserved State power so long as the State
has ‘a legitimate choice whether to accept the federal conditions in exchange for
federal funds.’” State v. Dep’t of Justice, 951 F.3d 84, 115 (2d Cir. 2020) (quoting
NFIB, 567 U.S. at 578). This rule makes sense: If Congress can conscript States to
do its fiscal bidding by spending billions of dollars, then the anticommandeering
doctrine would no longer be the stalwart, structural wall the Constitution demands.
Put simply, allowing Congress to bypass the anticommandeering doctrine under its
spending power would turn that doctrine into mere constitutional theory.
Justice Scalia’s opinion in NFIB illustrated this point:
Suppose, for example, that Congress enacted legislation offering each
State a grant equal to the State’s entire annual expenditures for primary
and secondary education. Suppose also that this funding came with
conditions governing such things as school curriculum, the hiring and
tenure of teachers, the drawing of school districts, the length and hours
of the school day, the school calendar, a dress code for students, and
rules for student discipline. As a matter of law, a State could turn down
that offer, but if it did so, its residents would not only be required to pay
the federal taxes needed to support this expensive new program, but
they would also be forced to pay an equivalent amount in state taxes.
And if the State gave in to the federal law, the State and its subdivisions
would surrender their traditional authority in the field of education.
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NFIB, 567 U.S. at 680-81 (Scalia, J., with Kennedy, Thomas, and Alito, JJ.,
dissenting). Administering education policy, of course, is not the only core duty of
the States. Taxing and budgetary powers are, too. And like the hypothetical grant
equal to States’ annual education expenses conditioned on adopting federal
educational policies, ARPA offers States the impossible choice of accepting a
quarter of their overall annual budgets conditioned on adopting federal tax
preferences. If the Constitution allowed this type of funding-fueled commandeering,
the federal government would have the extraordinary power to take over any aspect
of state government under the guise of spending for the general welfare—it would
not be long until there was no longer a need for States at all.
This is why the Spending Clause is no bypass of anticommandeering
principles. Congress’ command to the States in the Federal Tax Mandate is not
compatible with principles of liberty or political accountability, and it offends the
States’ status as co-sovereigns. The Plaintiff States are therefore likely to succeed
on the merits of their challenge on Count II as well. Compl. ¶¶ 123-28.
II. The Plaintiff States Will Suffer Irreparable Injury Absent An
Injunction.
Harm is irreparable “if it cannot be undone through monetary remedies.”
Cunningham v. Adams, 808 F.2d 815, 821 (11th Cir. 1987). This applies most
clearly where there is an injury to a fundamental right. See, e.g., Jones v. Gov. of
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Fla., 950 F.3d 795, 828 (11th Cir. 2020) (right to vote); Ne. Fla. Chapter of Ass’n
of Gen. Contractors of Am. v. City of Jacksonville, Fla., 896 F.2d 1283, 1285 (11th
Cir. 1990) (right to privacy); Cate v. Oldham, 707 F.2d 1176, 1188 (11th Cir. 1983)
(right to free speech). And courts outside the Eleventh Circuit often presume
irreparable injury in cases where a “constitutional right is being threatened or
impaired.” Am. Civil Liberties Union of Ky. v. McCreary Cnty., 354 F.3d 438, 445
(6th Cir. 2003), aff’d sub nom. 545 U.S. 844 (2005).
The Federal Tax Mandate is precisely this type of irreparable harm because,
by invading the Plaintiff States’ sovereign and constitutional authority to tax, it
intrudes on the “sovereign interests” of the Plaintiff States. Kansas v. United States,
249 F.3d 1213, 1227 (10th Cir. 2001); accord Texas v. United States, 809 F.3d 134,
157 (5th Cir. 2015); Georgia v. Pruitt, 326 F. Supp. 3d 1356, 1367 (S.D. Ga. 2018).
Indeed, federal action always causes irreparable injury when it improperly interferes
with a State’s freedom to order its own affairs and act responsive to its people’s
needs. See Abbott v. Perez, 138 S. Ct. 2305, 2324 (2018); accord Maryland v. King,
567 U.S. 1301 (2012) (Roberts, C.J., in chambers).
And that is just the long-term harm: Without fast relief, the Plaintiff States
will also suffer more immediate irreparable injury. ARPA requires the Plaintiff
States to certify compliance with the Federal Tax Mandate, but certification under
this ambiguous and overbroad provision could subject the Plaintiff States to
28
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 38 of 43
unknown penalties based on an unknown set of state legislative or administrative
actions. Yet Plaintiff States that refuse to certify compliance (in the absence of a
court ruling establishing ARPA’s proper constitutional limits) may not receive the
critical COVID-19 relief to which they are entitled and that their people need—now,
not months in the future.
Hand-in-hand with this concern is the pressing need for the Plaintiff States’
legislatures to know whether and how they can reduce taxes consistent with their
responsibility to their constituents. Unlike Congress, many of the Plaintiff States’
legislatures do not meet year around. Some have legislative sessions fast coming to
a close, and others have limits on when special sessions can be called to respond to
changed circumstances. There is thus a strong probability that delayed clarity on
how accepting COVID-19 relief could affect their taxation powers would eliminate
the opportunity for many of the Plaintiff States to pass tax legislation until next year
or later. There is no remedy to recoup this lost legislative time. The Court should
enjoin enforcement of the Federal Tax Mandate to avoid these irreparable harms.
III. Threatened Injury To The Plaintiff States Outweighs The Nonexistent
Harm To The Defendants And Promotes The Public Interest.
Both the public interest and the balance of equities between the parties favor
an injunction. Enjoining an unconstitutional provision would make clear that the
Plaintiff States’ legislatures can fulfill their sovereign responsibilities on behalf of
The People. After all, “the public interest lies in a correct application of the” law,
29
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 39 of 43
and “upon the will of the people . . . being effected in accordance with [the] law.”
Coal. to Defend Affirmative Action v. Granholm, 473 F.3d 237, 252 (6th Cir. 2006).
In contrast, enjoining the Federal Tax Mandate will not harm Defendants—or
anyone else for that matter. The Plaintiff States ask this Court to enjoin the Federal
Tax Mandate alone, while keeping the rest of ARPA firmly in place. Injunctive
relief does not delay or threaten distribution of ARPA funds, nor interfere with any
individual’s or entity’s use of that relief. Rather, it will help facilitate the
expenditure of funds by giving the Plaintiff States assurance that they can act without
fear of violating the Federal Tax Mandate.
CONCLUSION
The Court should enjoin enforcement of the Federal Tax Mandate.
Respectfully submitted,
30
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 40 of 43
/s/ Edmund G. LaCour, Jr. /s/ Bryan M. Taylor
STEVE MARSHALL Bryan M. Taylor
Alabama Attorney General Bachus Brom & Taylor LLC
Edmund G. LaCour, Jr. 300 Vestavia Parkway, Suite 3700
Alabama Solicitor General Birmingham, AL 35216
James W. Davis Tel: (334) 595-9650
A. Reid Harris btaylor@bachusbrom.com
Assistant Attorneys General
Office of the Alabama
Attorney General /s/ Nicholas Bronni
501 Washington Ave. LESLIE RUTLEDGE
P.O. Box 300152 Arkansas Attorney General
Montgomery, AL 36130 Nicholas J. Bronni (pro hac vice)
Tel: (334) 353-2196 Arkansas Solicitor General
edmund.lacour@alabamaAg.gov Vincent M. Wagner (pro hac vice)
jim.davis@AlabamaAG.gov Deputy Solicitor General
reid.harris@AlabamaAG.gov Dylan L. Jacobs (pro hac vice)
Counsel for State of Alabama Assistant Solicitor General
Office of the Arkansas
/s/ Lindsay S. See Attorney General
PATRICK MORRISEY 323 Center Street, Suite 200
West Virginia Attorney General Little Rock, Arkansas 72201
Lindsay S. See (pro hac vice) Tel: (501) 682-6302
West Virginia Solicitor General nicholas.bronni@arkansasag.gov
David C. Tryon (pro hac vice) Counsel for State of Arkansas
Special Assistant to the
Attorney General
(Admitted in Ohio; practicing /s/ John M. Ptacin
under supervision of West Virginia TREG R. TAYLOR
attorneys) Attorney General of Alaska
Jessica A. Lee (pro hac vice) John M. Ptacin*
Assistant Solicitor General Chief Assistant Attorney General
Office of the West Virginia Alaska Department of Law
Attorney General 1031 West Fourth Avenue, Suite 200
1900 Kanawha Blvd. East Anchorage, Alaska 99501
Building 1, Room E-26 Tel: (907) 269-5100
Charleston, WV 25305 Facsimile: (907) 276-3697
Tel: (304) 558-2021 John.ptacin@alaska.gov
Lindsay.S.See@wvago.gov Counsel for State of Alaska
Counsel for State of West Virginia
31
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 41 of 43
/s/ Jason Hilborn /s/ David M.S. Dewhirst
ASHLEY MOODY AUSTIN KNUDSEN
Florida Attorney General Attorney General of Montana
Jason H. Hilborn (pro hac vice) David M.S. Dewhirst**
Assistant Solicitor General Solicitor General
Office of the Florida Office of the Attorney General
Attorney General 215 North Sanders
Office of the Attorney General P.O. Box 201401
State of Florida Helena, MT 59620-1401
PL-01 The Capitol Tel: (406) 444-4145
Tallahassee, FL 32399 David.Dewhirst@mt.gov
Tel: (850) 414-3300 Counsel for the State of Montana
Jason.Hilborn@myfloridalegal.com
Counsel for State of Florida
/s/ Jeffrey S. Thompson /s/ Daniel E. Will
THOMAS J. MILLER Daniel E. Will**
Attorney General of Iowa New Hampshire Solicitor General
Jeffrey S. Thompson** Office of the New Hampshire
Solicitor General Attorney General
1305 East Walnut Street 33 Capitol Street
Des Moines, IA 50319 Concord, NH 03301-6397
Tel: 515-281-5164 Tel: (603) 271-1119
jeffrey.thompson@ag.iowa.gov Daniel.E.Will@doj.nh.gov
Counsel for State of Iowa Counsel for the State of
New Hampshire
/s/ Dwight R. Carswell /s/ Mithun Mansinghani
DEREK SCHMIDT MIKE HUNTER
Kansas Attorney General Oklahoma Attorney General
Dwight R. Carswell (pro hac vice) Mithun Mansinghani**
Assistant Solicitor General Solicitor General
Office of the Kansas Oklahoma Office Of The
Attorney General Attorney General
120 SW 10th Ave., 3rd Floor 313 NE Twenty-First St.
Topeka, Kansas 66612 Oklahoma City, OK 73105
Tel: (785) 368-8410 Tel: (405) 521-3921
dwight.carswell@ag.ks.gov mithun.mansinghani@oag.ok.gov
Counsel for State of Kansas Counsel for the State of Oklahoma
32
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 42 of 43
/s/ J. Emory Smith, Jr.
ALAN WILSON /s/ Melissa A. Holyoak
South Carolina Attorney General SEAN REYES
J. Emory Smith, Jr. (pro hac vice) Utah Attorney General
Deputy Solicitor General Melissa A. Holyoak (pro hac vice)
Office of the South Carolina Utah Solicitor General
Attorney General Office of the Utah Attorney General
Post Office Box 11549 160 E. 300 S., 5th Floor
Columbia, SC 29211 Salt Lake City, UT 84114
Tel: (803) 734-3680 Tel: (801) 366-0260
esmith@scag.gov Counsel for State of Utah
Counsel for State of South Carolina
/s/ Jeffery J. Tronvold
JASON RAVNSBORG *Pro hac vice application pending
South Dakota Attorney General **Pro hac vice application
Jeffery J. Tronvold* forthcoming
Deputy Attorney General
1302 East Highway 14, Suite 1
Pierre, South Dakota 57501-8501
Tel: (605) 773-3215
Jeffery.tronvold@state.sd.us
Counsel for State of South Dakota
33
Case 7:21-cv-00465-LSC Document 21 Filed 04/13/21 Page 43 of 43
CERTIFICATE OF SERVICE
I hereby certify that on April 13, 2021, I electronically filed this document
using the Court’s CM/ECF system. I further certify that I have on this date mailed a
copy of the foregoing to the following parties:
Janet Yellen Merrick Garland
Secretary of U.S. Department of Attorney General
Treasury U.S. Department of Justice
U.S. Department of the Treasury 950 Pennsylvania Ave. NW
1500 Pennsylvania Avenue, NW Washington, D.C. 20530-0001
Washington, D.C. 20220
Richard K. Delmar Prim Escalona
Inspector General Civil Division, Process Clerk
U.S. Department of the Treasury United States Attorney’s Office
1500 Pennsylvania Avenue, NW 1801 4th Avenue North
Washington, D.C. 20220 Birmingham, AL 35203
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
I further certify that I served a copy of this document by e-mail upon:
Stephen Ehrlich
Trial Attorney
United States Department of Justice
Civil Division, Federal Programs Branch
Stephen.Ehrlich@usdoj.gov
Lane Woodke
Assistant United States Attorney
Civil Chief
United States Attorney’s Office for the Northern District of Alabama
Lane.Woodke@usdoj.gov
/s Edmund G. LaCour Jr.
Counsel for State of Alabama
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