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The ruling curtails Treasury's ability to enforce the so-called "tax mandate" in the American Rescue Plan Act, but only applies to the Buckeye State. Similar legal disputes are pending in other courts.
The Treasury Department cannot enforce part of a coronavirus recovery law that would prevent Ohio from using federal aid funding provided by the measure to offset tax cuts, a federal judge has ruled.
U.S. District Judge Douglas R. Cole said that the provision—dubbed the "tax mandate" by Ohio's attorney general and others—didn't meet legal standards the Supreme Court previously established that have to do with what's known as the U.S. Constitution's Spending Clause and how Congress imposes conditions on grants to states.
In short, he ruled that the language in the American Rescue Plan Act was too ambiguous to pass muster under that legal precedent.
"The Court finds that Tax Mandate’s language, in and of itself, falls short of the clarity required when Congress exercises its powers under the Spending Clause," Cole wrote in his 49-page opinion and order.
"The Tax Mandate exceeds Congress’s power under the Constitution," he added.
Moreover, the judge concluded, that rules the Treasury Department issued to guide the implementation of the law don't fix this problem.
Cole granted Ohio's request for a permanent injunction blocking the Treasury Department from enforcing the provision against the state. But the judge emphasized the injunction only covers the tax mandate provision, and only applies to Ohio.
The case isn't the only one where state officials are challenging the tax cut restrictions. Republicans, in particular, have bristled over the mandate, characterizing it as a federal infringement on the authority of their states to write tax policy.
West Virginia and 12 other states lodged a similar lawsuit against Treasury in March, and the Wisconsin Legislature has since moved to join that case. That dispute remains active in an Alabama district court. Meanwhile, Texas, Mississippi and Louisiana have a similar case pending in a district court in Texas.
Ohio's Republican Attorney General, Dave Yost, celebrated the ruling in the case involving his state.
“The Biden administration reached too far, seized too much and got its hand slapped,” he said in a statement. “This is a monumental win for the preservation of the U.S. Constitution.”
“This case is about the separation of power and I am pleased that the court agreed with our position that the Tax Mandate is out of bounds," Yost added.
The program that the provision applies to directs about $195 billion in federal aid to states, including $5.4 billion to Ohio.
Treasury did not respond to a request for comment on the ruling.
The language that has stirred the legal controversy stipulates that states cannot use aid funds received under the American Rescue Plan to “directly or indirectly offset" a reduction in "net tax revenue” caused by a change in tax policy.
In the Ohio case, Cole highlighted the notion of the indirect offset as particularly problematic. "Even armed with the Court’s guidance as to the source of the ambiguity," the judge wrote, "[Treasury] provides no workable definition of what an 'indirect offset' is."
Bill Lucia is a senior editor for Route Fifty and is based in Olympia, Washington.
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