State Tax Freedom Act

To eliminate the prohibition on States and territories receiving Coronavirus State Fiscal Recovery funds from lowering taxes. 1. Short title This Act may be cited as the State Tax Freedom Act 2. Refunds to offset Coronavirus State Fiscal Recovery funds already repaid by reason lowering taxes (a) In general Subchapter B of chapter 65 6424. Refunds to States to offset certain required repayments of Coronavirus State Fiscal Recovery funds (a) In general As soon as practicable after any specified State pays any specified repayment, the Secretary shall make a payment to such specified State in an amount equal to such specified repayment. (b) Specified repayment For purposes of this section, the term specified repayment (c) Specified State The term specified State (d) Other terms The terms State territory Tribal government (e) Treatment of payments For purposes of section 1324 of title 31, United States Code, the payments under this subsection shall be treated in the same manner as a refund due from a credit provision referred to in subsection (b)(2) of such section. . (b) Clerical amendment The table of sections for subchapter B of chapter 65 of such Code is amended by inserting after the item relating to section 6423 the following new item: Sec. 6424. Refunds to States to offset certain required repayments of coronavirus State and local fiscal recovery funds. . (c) Effective date The amendments made by this section shall apply to repayments paid after the date of the enactment of the American Rescue Plan Act of 2021. 3. Elimination of prohibition on States receiving Coronavirus State Fiscal Recovery funds from lowering taxes (a) In general Paragraph (2) of section 602(c) of the Social Security Act, as added by section 9901 of the American Rescue Plan Act of 2021, is amended to read as follows: (2) Further restriction on use of funds No State or territory may use funds made available under this section for deposit into any pension fund. . (b) Conforming amendments Section 602 of such Act is further amended— (1) in subsection (d)(2)(A), by striking , including, in the case of a State or a territory, all modifications to the State's or territory's tax revenue sources during the covered period (2) in subsection (e), by striking such subsection, such subsection. (3) in subsection (g)— (A) by striking paragraph (1); and (B) by redesignating paragraphs (2) through (7) as paragraphs (1) through (6), respectively. (c) Effective date The amendments made by this section shall apply with respect to repayments which would (but for such amendments) be required to be paid after the date of the enactment of this Act.

Summary: State Tax Freedom Act This bill removes a prohibition on states and territories using COVID-19 relief funding under the American Rescue Plan Act of 2021 to offset a reduction in revenue resulting from a reduction in taxes or a delay in the imposition of a tax or tax increase. Additionally, the bill requires the Department of the Treasury to refund the state, territory, or tribal government any money that was repaid to the federal government since enactment of the American Rescue Plan Act of 2021 due to the state cutting taxes.