Federal COVID relief to states restricts use for ‘net tax’ reductions

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March 2021

Overview

The American Rescue Plan Act enacted on March 11 provides over $195 billion in direct aid to states but includes a provision prohibiting the use of those funds to “either directly or indirectly offset a reduction in the net tax revenue” of a receiving state.

Action Item: This provision has injected uncertainty in state budget discussions and in some cases caused states to pause the legislative process for tax relief proposals and other measures that seek to address the economic effects of the pandemic. Businesses should monitor tax measures potentially impacted by this provision and the status of Treasury guidance on the issue.

The takeaway

Tax proposals that just two weeks ago seemed likely to be enacted in some states are now subject to analysis under the new federal aid restrictions. Businesses should monitor tax measures potentially impacted by this provision and the status of Treasury guidance on the issue. Depending on the timing and specifics of such guidance, some state tax legislation could be delayed or even bypassed as a result.

Contact us

Robert Ozmun

Partner, PwC US

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