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The US Treasury Department has published an interim final rule on the administration of state and local fiscal recovery funds established under the American Rescue Plan Act of 2021 (ARPA). The interim rule, effective May 17, 2021, includes guidance on an ARPA provision prohibiting the states from using fund disbursements to “either directly or indirectly offset a reduction in the [state’s] net tax revenue.”

States will have to analyze the impact of Treasury’s guidance on continuing budget discussions and pending legislation, as well as regulatory projects and administrative guidance. The guidance addresses some states’ concerns, particularly those with improving economies. Businesses should monitor tax measures potentially impacted by this provision and any changes to Treasury guidance on the issue.