Tue 10/18/2022 11:17 AM
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Relevant Documents:
Certification Petition
Docket (U.S. Supreme Court)

The State of Missouri has submitted a petition for a writ of certiorari to the U.S. Supreme Court seeking review of the U.S. Court of Appeals for the Eighth Circuit ruling in July that Missouri lacked standing to pursue its challenge to the so-called offset restriction, or tax mandate, provision in the American Rescue Plan Act, or ARPA, which prohibits states from using ARPA funds to directly or indirectly offset a net revenue reduction by cutting taxes. The Eighth Circuit’s decision represents a split from the Ninth Circuit’s ruling in May that Arizona, which also challenged the offset restriction, did have standing.

The Wednesday, Oct. 12, petition presents the following questions to the Supreme Court:
  • Does Missouri have standing to challenge the Department of Treasury’s interpretation of the tax mandate as inconsistent with the law?
  • Does the tax mandate prohibit only the deliberate use of ARPA funds to pay for a tax cut?
  • If the tax mandate does more than prevent the deliberate use of ARPA funds to pay for a tax cut, is it constitutional under Article I, section 8 of the U.S. Constitution and the Tenth Amendment?
The ARPA provides Missouri with roughly $2.7 billion, subject to the condition, referred to as the tax mandate, that the state cannot use those funds “to either directly or indirectly offset a reduction in the net tax revenue of such State or territory resulting from a change in law, regulation, or administrative interpretation.” The Treasury Department reads the law as prohibiting revenue-reducing tax policies, while Missouri interprets the law as prohibiting only the deliberate use of ARPA funds to pay for a tax cut and asserts that the government’s position is unconstitutional.

The Eighth Circuit did not reach the merits of Missouri’s challenge, instead affirming the district court’s decision dismissing the case and holding that Missouri lacked standing because it only alleged a “conjectural or hypothetical” injury, not one that is actual or imminent. Missouri filed suit in March 2021, shortly after the ARPA was enacted and before the Treasury Department issued an interim rule implementing the offset restriction.

Analyzing Missouri’s standing under the Supreme Court’s pre-enforcement standing precedents, both the district court and the Eighth Circuit faulted Missouri for failing to say it will violate the tax mandate as the government interprets it. But when it brought the suit, the state alleged that it will take ARPA funds and intends to, and now is, cutting taxes - conduct that could violate the Treasury’s broad interpretation, according to the petition. “That is enough. It is not, and never has been, the rule that a plaintiff must say it will violate the law in order to have standing. If it were, then plaintiffs like Missouri would be forced to choose between judicial review - and the risks of an adverse judgment, such as the loss of ARPA funds - or forfeiting their rights,” the petition asserts, arguing that Missouri has standing when viewing this case as a pre-enforcement challenge.

The petition further contends that the Eighth Circuit’s decision ignores Missouri’s interests in the ARPA and its sovereign interests. Missouri asserts that Congress, using its Spending Clause power, can attach conditions to federal funds to achieve goals it could not accomplish directly. But to protect the states from being commandeered by Congress, the U.S. Constitution mandates that spending conditions be unambiguous, related to the federal interest of the program and not coercive, according to the petition.

“Thus, Treasury’s broad interpretation has already harmed Missouri’s interests,” the petitioner asserts, arguing that under Missouri’s reading of the law, the Treasury altered the constitutional conditions that Congress had attached to the ARPA, and “so trenched” on Missouri’s right to a spending offer with clear and non-coercive terms. Similarly, for the state’s alternative constitutional challenge, if the Treasury “properly interpreted the Tax Mandate, the law infringes Missouri’s right, rooted in its sovereignty, to constitutional spending conditions,” according to the petition.

Asserting a second sovereign harm, Missouri contends that the Treasury’s “broad interpretation of the law (or the law itself, if Treasury is correct) commandeers” the state’s tax policy by punishing it for exercising its sovereign right to cut taxes. “Missouri has therefore suffered two species of harm, and so has standing, according to the petition. “Indeed, the Ninth Circuit held that Arizona has standing to challenge the Tax Mandate’s constitutionality under essentially the same theories.”

Certiorari is warranted to resolve that “clear circuit split on an important issue,” Missouri asserts, contending that review is appropriate to clarify how and when states may challenge conditions attached to federal funding.

Missouri also argues that the court should review the merits, stressing the high stakes in a case where the law, and the Treasury’s interpretation of it, governs $195 billion of ARPA funds, and every state is subject to the restriction.

“Whether Treasury properly interpreted the Tax Mandate, and whether it is constitutional, are issues of constitutional and nationwide importance,” Missouri asserts. “Moreover, of all the cases challenging the Tax Mandate, this is the only one that presents an alternative statutory interpretation of the law that avoids the constitutional problems. All the other cases just argue that the Tax Mandate is unconstitutional. Thus, this is the only case that presents the full range of interpretative and constitutional issues to the Court.”

Cataloging current litigation involving the tax mandate, the petition notes that 21 states, including Missouri, have brought suit in six different courts in five circuits. To date, two circuits have analyzed a state’s standing to challenge the tax mandate or its implementation. “The Ninth Circuit ruled that Arizona has standing to challenge the Tax Mandate’s constitutionality - a decision that is consistent with the decisions of four district courts,” the petitioners state. “The Eighth Circuit concluded otherwise here. That was [in] error.”

The case presents the “ideal vehicle to resolve that split and to clarify” when a state may bring suit to challenge a spending restriction or the executive branch’s interpretation of one, Missouri asserts, adding that because the Eighth Circuit’s analysis “implicitly resolved” the meaning and constitutionality of the tax mandate, the case is also a proper vehicle to address those issues.

“Indeed, it is the ideal vehicle. All the other challenges to the Tax Mandate percolating through the lower courts challenge the constitutionality of the law. This is the only case that presents a constitutional interpretation of the Tax Mandate, and so the only case that preserves the law as Congress intended,” Missouri argues.
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