A federal district court decision will allow Louisiana to use American Rescue Plan funds allocated during the COVID-19 pandemic to provide tax relief to struggling small businesses, according to the Louisiana NFIB.
In a ruling that affects Texas and Mississippi as well as Louisiana, the Northern District of Texas court agreed with the plaintiff states that the federal act’s prohibition on using the funds for state tax cuts, rebates or deductions is unconstitutional and illegally coercive. The law’s language also allowed the U.S. secretary of the treasury to recoup funds allocated to states that are used for tax relief.
“The court … grants (the) plaintiffs' request for a permanent injunction and enjoins defendants and any other agency or employee of the United States from enforcing Section 802(c)(2)(A) (of the American Rescue Plan Act) against plaintiffs or recouping funds from plaintiffs for a violation thereof,” the April 8 opinion by Judge Matthew Kacsmaryk states.
The Louisiana state director for the National Federation of Independent Business said the decision clears the way for state lawmakers to use the relief funds to lower income tax burdens.
“We know that about 75% of small businesses file as individuals, which is why the individual rate is important to us,” Dawn Starns McVea said in an email to the Louisiana Record. “When job creators benefit from a tax break, those dollars get circulated back through the economy several times over in the form of higher wages, expanded capital investment and more jobs.”
The Louisiana NFIB remains hopeful that the Louisiana Legislature will take steps to reduce tax burdens this year.
“We hope to see the Legislature act to further lower the individual income tax rate,” McVea said. “However, we know there are priorities that come first, like backfilling the unemployment trust fund to ensure businesses don’t pay higher taxes that would be triggered if the fund remains below $750 million.”
The specifics of a potential tax cut could come next month, when the Louisiana Revenue Estimating Conference meets.
“At that time, if it makes sense for the budget, we certainly hope that Louisiana legislators will vote to lower the individual income tax rate,” she said.
Louisiana small businesses are struggling under rising inflation and a lack of qualified workers, according to the Louisiana NFIB. They would benefit significantly from tax reductions, NFIB officials said.
The plaintiffs argued before the court that the ban on tax relief in the law had no relation to the overall purpose of the act and infringed on states’ fiscal sovereignty in violation of the Tenth Amendment.