CHARLESTON — West Virginia Attorney General Patrick Morrisey said he is not satisfied with the U.S. Treasury Secretary’s response to his joint effort with other states to seek confirmation that the most recent COVID-19 stimulus bill does not strip states of their well-established authority to tax or not tax their citizens.
“Secretary (Janet) Yellen’s response is simply unacceptable,” Morrisey said March 24. “We will now take the final steps necessary to meet the Biden administration in court. West Virginia cannot accept the statute’s ambiguity, and given the administration’s failure to correct this problem, we are left with no option other than seeking a court order to protect West Virginia’s interests.
“Money is fungible and the term ‘indirectly’ remains ambiguous and overbroad. The federal government cannot strip from the state one of its core constitutional functions in exchange for a large check. Federal spending power has clear limitations and Congress may not micromanage a state’s fiscal policies.”
Last week, Morrisey – along with Arizona AG Mark Brnovich and Georgia AG Chris Carr – led a 21-state coalition in sending a letter to Yellen arguing that, absent an interpretation by her department that properly addressed the issue, the legislation almost certainly is an unconstitutional intrusion on state sovereignty.
The coalition’s letter took specific issue with a provision of the American Rescue Plan Act of 2021 that prohibits states from using stimulus funds to directly or indirectly offset a reduction in net tax revenue.
Morrisey says this matter directly impacts whether the American Rescue Plan will infringe upon the West Virginia Legislature’s consideration of a proposal to eliminate the state’s income tax, specifically with regards to how U.S. Treasury officials interpret the word “indirectly” as contained in the provision.
The coalition’s letter notes the power to tax or not tax citizens and residents is a right that exclusively belongs to the states and territories. The attorneys general contend any conditions attached to the receipt and use of federal funds must be unambiguous, comply with other constitutional provisions and relate to the federal interest for which the spending program was established.
Last week’s letter cites potential changes to West Virginia’s sales tax exemption on aircraft repair and maintenance as well as an extension of the state’s Neighborhood Investment Tax Credit as examples of the uncertainty that exists within the Rescue Plan’s federal tax mandate.
“Federal spending power has clear limitations,” Morrisey said. “Congress may not micromanage a state’s fiscal policies in violation of anti-commandeering principles nor coerce a state into forfeiting one of its core constitutional functions in exchange for a large check from the federal government.
"Such ‘economic dragooning’ of the states cannot withstand constitutional scrutiny.”
Morrisey also had a March 17 press briefing with state legislative leaders to discuss the letter and the situation.
“We’re working on an issue of upmost importance for the citizens of the state of West Virginia and for our country,” Morrisey said during his March 17 press briefing with state legislative leaders. “We take great issue with Congress’ decision to potential deny states the ability to cut taxes in any matter whatsoever.
“Even if these states and these gentlemen here would’ve enacted the cuts without the use of the COVID relief funds, there are huge legal and constitutional problems with these provisions.”
Morrisey said he and other AGs agree they never have seen anything like this, calling it “one of greatest attempted invasions of state sovereignty by Congress in the history of our republic.”
“The law expressly prohibits states from using funds to either directly or indirectly offset a reduction in net tax revenue,” he said. “We aren’t taking issue with direct part, but the indirect part is impermissible coercion.
“West Virginia, of course, is currently considering making change to a wide variety of taxes. These changes could be worth close to a billion dollars. If we don’t get clarity from the Treasury Department or the courts, West Virginia will have a sword of Damocles hanging over its head for the foreseeable future.”
House Finance Committee Chairman Eric Householder called the possible federal overreach intrusive.
“It hampers our ability to provide tax relief and tax reform to our citizens,” Householder (R-Berkeley) said.
Senate Finance Committee Chairman Eric Tarr agreed.
“This is a destruction of federalism,” Tarr (R-Putnam) said. “The worst I’ve ever seen. We will fight this.”
Senate President Craig Blair said the law could hold the state and lawmakers hostage. He also called out U.S. Senator Joe Manchin.
“Let’s be honest, we’ve got one U.S. Senator who is opposed to our tax plan,” Blair (R-Berkeley) said. “I’d actually call out on him, Sen. Joe Manchin, to come out and get clarity for us on this issue as well … not to use a piece of federal legislation to hamper our ability to grow our state.
“What we’re doing it is right. We’re getting it right. We’re working on changing our tax structure.”
The coalition’s letter takes specific issue with a provision of the American Rescue Plan Act of 2021 that prohibits states from using stimulus funds to directly or indirectly offset a reduction in net tax revenue.
West Virginia co-led the coalition with Arizona and Georgia with support from attorneys general in Alabama, Arkansas, Florida, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Oklahoma, South Carolina, South Dakota, Texas, Utah and Wyoming.