Federal Judge Denies W.Va. AG’s Motion To Block Tax Provision In American Rescue Plan

A federal judge in Alabama has denied a motion brought by West Virginia and 12 other states to block enforcement of a piece of the American Rescue Plan that prevents states from using federal relief dollars to backfill revenue losses from tax cuts.

West Virginia Attorney General Patrick Morrisey and attorneys general from other states argued that the provision violates the Spending Clause and the 10th Amendment to the U.S. Constitution, which gives states the right to control taxes.

Embedded in the American Rescue Plan is a provision that makes clear that states cannot use the federal relief dollars “to either directly or indirectly offset a reduction in the net tax revenue.” Morrisey and others argue that the language found in the bill prevents states from cutting taxes.

In a Wednesday court filing, U.S. District Judge L. Scott Coogler says the states do have standing to bring the case, but they failed to show that the court could provide relief that would address the harm they would suffer in the absence of an injunction.

Despite being denied the injunction, Morrisey expressed optimism that the provision would later be overturned. He cited another case brought forth by the state of Ohio that challenged the constitutionality of the tax provision in the American Rescue Plan.

“This is the first step of many, and it’s similar to what happened in Ohio, where that state lost on the preliminary injunction and won the base case on the merits,” Morrisey said. “We’re hopeful we will win on the district court level, and if not, then we’ll appeal the case.

“We are correct on the merits: the federal government cannot coerce a state into forfeiting one of its core constitutional functions in exchange for a large amount of money,” he added.

Earlier this year, the West Virginia House of Delegates shot down a proposal backed by Gov. Jim Justice that would have phased out the state’s income tax, but also would have raised other taxes.

Upon passage of the American Rescue Plan, Justice took aim at U.S. Sen. Joe Manchin, saying Manchin added that provision to block his plan to eliminate state income taxes.