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Ivey urged to use remaining CARES relief funds for tax cut

By TODD STACY, Alabama Daily News

MONTGOMERY, Ala. – The Alabama Policy Institute, a Birmingham-based conservative think tank, on Tuesday publicly urged Gov. Kay Ivey to use the remaining money from the federal CARES Act to fund a statewide sales tax holiday meant to boost local businesses.

Estimating that the state has about $300 million in uncommitted funds from the about $1.9 billion the state received in COVID-19 relief from Congress, API figures the sales tax holiday could last as long as a month.

However, the Ivey administration says that such use of CARES Act funds would violate the law and put the state in a position of potentially owing the federal government hundreds of millions of dollars.

In a letter to API’s Director of Policy Strategy Phil Williams, State Finance Director Kelly Butler wrote that while a sales tax holiday might help the economy, it goes against the rules laid out by Congress and the U.S. Treasury Department to use the funds only for “expenditures” related to pandemic.

“Even if we could treat a tax expenditure as an ‘expenditure’ to satisfy the CARES Act requirement, all of API’s models for implementing a sales tax holiday utilize (Coronavirus Relief Fund) funds to replace the revenue lost as a result of the sales tax holiday,” Butler wrote. “U.S. Treasury guidance has consistently and unequivocally held that CRF funds may not be used to replace lost public revenue.”

Butler letter to API

Butler’s explanation, and the perceived lack of involvement from Ivey herself, seems to have irked Williams and API president Caleb Crosby, who issued stern statements disagreeing with the administration’s stance and calling on the governor to intervene.

“Gov. Ivey alone has the power and authority to expend CARES Act funds; unfortunately, she has so far chosen to use the money to grow government rather than to truly help the people of Alabama,” Crosby said.

In a Tuesday statement, the API leaders said the organization had worked for two months with Ivey’s office on a tax holiday plan, but recently learned Ivey has declined the proposal. Their announcement came after API earlier in the week asked Ivey to call a special session of the Legislature this year to address several issues, including clarifying that federal COVID relief money received by individuals and businesses would not be taxed by the state.

API also released a letter from Bryan Taylor, Ivey’s former chief legal counsel, making the case that a sales tax holiday could be allowed under the CARES Act.

“While it may look like impermissible ‘revenue replacement’ at first blush, there is a solid, good-faith legal and fiscal basis for distinguishing the proposed ‘sales tax holiday’ as an expenditure to cover a qualifying ‘cost[] of the State.’ 42 U.S.C. § 601(d),” Taylor wrote. “Simply put, a ‘sales tax holiday’ is regarded as a ‘tax expenditure.'”

Bryan Taylor Letter

The group also pointed to other states including Idaho and Kansas that have implemented some form of tax relief using CARES Act funds. According to the Idaho Statesman, Gov. Brad Little implemented a property tax holiday in a roundabout way, offering $200 million to participating cities and counties to cover the salaries of local employees and other expenses that property taxes fund. The legality of Little’s plan has been challenged by local officials.

The API released polling taken by Montgomery-based Cygnal in June showing almost 70% of Alabama voters favor using the state’s federal coronavirus relief money for tax relief.

Ivey’s press secretary, Gina Maiola, said even “solid” ideas like this one must comply with the law.

“The Governor’s Office has been approached with many solid proposals regarding the use of Cares Act dollars. However, this particular one does not fit within the scope of what is allowable, per guidance set by the U.S. Department of the Treasury,” Maiola said.

Ivey’s office further pointed to Butler’s letter from July 16 stating why the administration maintains the proposal wouldn’t be allowed under the law.

“I want to reiterate that API’s proposal is appealing,” Butler concluded. “However, CRF funds may not be used for this endeavor. If API is able to identify a different funding source, we will certainly consider it.”

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