Eleventh Circuit: Permanent injunction against “tax mandate” in American Rescue Plan Act upheld

Permanent injunction against enforcement of the “tax mandate” provision in the American Rescue Plan Act

Eleventh Circuit

The U.S. Court of Appeals for the Eleventh Circuit today upheld a federal district court’s permanent injunction against enforcement of the “tax mandate” provision in the American Rescue Plan Act.

The case is: West Virginia v. U.S. Department of the Treasury, No. 22-10168 (11th Cir. January 20, 2023). Read the Eleventh Circuit’s decision [PDF 239 KB]


Thirteen states* sued the U.S. Treasury in the United States District Court for the Northern District of Alabama to challenge a tax offset provision in the American Rescue Plan Act, a coronavirus stimulus package passed by Congress in 2021. That offset provision prohibits states from using rescue plan funds “to either directly or indirectly offset a reduction in [their] net tax revenue” that results from a change in law that “reduces any tax.” The States argued that this so-called “tax mandate” is an unconstitutionally ambiguous and coercive condition under the Spending Clause and violates the Tenth Amendment’s anti-commandeering doctrine.

The district court found that the tax mandate is unconstitutionally ambiguous under the Spending Clause. Noting that (1) “[m]oney is fungible” and (2) the Act did not flesh out what “directly or indirectly” means, the district court concluded that receiving any rescue plan money could potentially constitute an indirect offset “in [a state’s] net tax revenue from a change in state law or policy.” The rescue plan left states holding the bag, with “no guidance on critical interpretive questions,” like how they can avoid indirectly offsetting net tax revenue with recovery funds. The district court therefore concluded that the tax mandate is inherently ambiguous, and that ambiguity may disincentivize the States in a way that unconstitutionally infringes on state sovereignty. The district court thus permanently enjoined enforcement of the tax mandate. The Secretary appealed.

Eleventh Circuit

The Eleventh Circuit agreed with the district court that the tax mandate is not ascertainable, and that the provision’s ambiguity injured (and continues to injure) the states’ sovereign interests. The Eleventh Circuit further found that the district court did not abuse its discretion in permanently enjoining enforcement of the tax mandate.

*The thirteen states were Alabama, Alaska, Arkansas, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, Utah, and West Virginia. 



The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.