Attorney General Morrisey Dissatisfied with U.S. Treasury's Response to Tax Cuts Question

Charleston — Attorney General Patrick Morrisey expressed dissatisfaction Wednesday 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 Yellen’s response is simply unacceptable,” Attorney General Morrisey said in a press release. “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,” he continued.
Last week, Attorney General Morrisey, Arizona Attorney General Mark Brnovich and Georgia Attorney General Chris Carr led a 21-state coalition in sending a letter to U.S. Treasury Secretary Janet 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.
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.