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Kansas AG files lawsuit against U.S. Treasury

Published: Apr. 1, 2021 at 10:21 AM CDT
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TOPEKA, Kan. (WIBW) - Attorney General Derek Schmidt has filed a lawsuit against the U.S. Treasury to protect state tax policy authority.

Attorney General Derek Schmidt says just a day after the Legislature gave final approval to compromise tax-relief legislation that got bipartisan support, he sued the Biden Administration to protect Kansas’ authority to set its own tax policy without being managed by the federal government.

AG Schmidt said he and a bipartisan group of 12 other attorneys general filed a federal lawsuit on Wednesday arguing that the federal Treasury Department cannot force states to relinquish control of their taxing authority in return for economic relief aid related to the COVID-19 pandemic. He said the states take particular issue with a provision in the latest stimulus bill that the attorneys general call an egregious power grab.

“Of course Congress may prohibit the use of federal funds to directly pay for state tax reductions,” Schmidt said. “But in this case, Congress also has tried to prohibit the ‘indirect’ use of federal aid to offset state tax reductions, and because money is fungible that kind of vague, sweeping federal prohibition may be interpreted broadly to call into question any change in state tax law that results in less revenue being collected. The federal government cannot micromanage state taxes that way. We are concerned that the U.S. Treasury Department has not immediately and unequivocally made clear it will interpret this new federal law narrowly to avoid unlawfully encroaching on authority reserved to the states by our U.S. Constitution.”

According to Schmidt, the attorneys general argue that the mandate could be used to reduce a state’s share of stimulus allotment if federal authorities disagree with any state tax policy that has the effect to reduce state revenue. He said this creates an effect on state lawmakers’ willingness to reduce the tax burdens on residents. He said the lawsuit wants a federal court order that prohibits the enforcement of federal tax mandates on states and declares it unconstitutional.

Schmidt said in March, he joined 20 other attorneys general to attempt to avoid litigation by sending a letter to U.S. Treasury Secretary Janet Yellen to ask her to confirm the federal legislation would not be implemented in ways that would strip the states of their taxing authority. However, he said the lawsuit filed on Wednesday argues that her response did not put limits on the vague provision.

According to the AG, the lawsuit was filed against the U.S. Department of Treasury, Secretary Yellen and the department’s Acting Inspector General Richard K. Delmar, who would be responsible for looking for any potential refund of federal funds.

A copy of the lawsuit, which was filed in U.S. District Court for the Northern District of Alabama, can be found HERE.

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