During a news conference Wednesday, the Democratic Murphy said he didn't think provisions in the 1.9 trillion American Rescue Plan Act
would inhibit the state's ability to act on the Economic Recovery Act, a $14 billion corporate tax break package he signed into law in January.Pressure has grown on the U.S. Department of the Treasury and Treasury Secretary Janet Yellen to clarify provisions in the American Rescue Plan, which includes a provision that prohibits states from using the recent $350 billion federal cash infusion "directly or indirectly" to offset state net tax revenue. States that don't comply with the provisions would be required to repay funds equal to the amount of tax cuts they gave. A letter from 21 Republican attorneys general on Wednesday said the provision could waylay state proposals in several states if interpreted too broadly.
While Murphy said he didn't think the provision would restrict the state, the attorneys general asked Yellen and Treasury to weigh in immediately on the provisions. They argued that a broad interpretation could "strip states of their core sovereign authority to enact and implement basic tax policy." Without an answer by March 23, the attorneys general said, they would take "appropriate action."
A Treasury spokesperson told Law360 on Thursday that Congress has the ability to establish reasonable conditions on how states should use funding provided by the federal government, noting that such conditions are used all the time and are constitutional.
The spokesperson said the American Rescue Plan doesn't say states can't cut taxes at all, they just can't use that money to offset net revenue lost if the state chooses to cut taxes. That means if a state cuts taxes without replacing that revenue in some other way, it must pay back to the federal government pandemic relief funds up to the amount of the lost revenue, the spokesperson said.
"In other words, states are free to make policy decisions to cut taxes — they just cannot use the pandemic relief funds to pay for those tax cuts," the spokesperson said.
Republican Ohio Attorney General Dave Yost went further Wednesday, filing for a preliminary injunction against the provision in Ohio federal court, arguing it exceeds Congress' authority. U.S. House Republican leaders also issued their own letter Wednesday with questions to Yellen, asking for clarification and guidance on the provision and requesting a reply by March 26.
A spokesperson for Murphy's office declined to comment further.
New Jersey's $14 billion tax incentive overhaul enacted in January created two new tax incentive programs, Aspire and Emerge, to replace the state's expired Economic Redevelopment and Growth Grant Program and the Grow New Jersey Assistance Program. The expired programs had drawn scrutiny for shortcomings in oversight. The total tax credits for the Aspire and Emerge programs would generally be capped at $1.1 billion annually. The law also authorizes tax credits for other initiatives, including brownfield remediation, building grocery stores in underserved areas known as food deserts and allowing the state to auction tax credits for cash that would be used for other investments.
Ralph Albert Thomas, chief executive and executive director of the New Jersey Society of CPAs, told Law360 that states are waiting for guidance from Treasury and its interpretation on the prohibition on indirect offsets. He also noted that congressional legislation has been introduced to eliminate the provision.
"We understand that the federal guardrails on state tax incentives tied to American Rescue Plan Act funds confused and frustrated many state leaders," Thomas said.
A spokeswoman for New Jersey's Democratic Assembly majority noted that lawmakers are at the beginning of the budget process for the 2022 fiscal year and that the Assembly Budget Committee plans to thoroughly review contingencies before producing a budget bill.
The offices of state Republican minority leaders and the Senate Democratic majority leader didn't immediately respond to requests for comment Thursday.
--Additional reporting by Maria Koklanaris and Abraham Gross. Editing by Neil Cohen.
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