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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.

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.