31 CFR 35.8 – Tax
(a) Restriction. A State or Territory shall not use funds to either directly or indirectly offset a reduction in the net tax revenue of the State or Territory resulting from a covered change during the covered period.
Terms Used In 31 CFR 35.8
- Baseline: Projection of the receipts, outlays, and other budget amounts that would ensue in the future without any change in existing policy. Baseline projections are used to gauge the extent to which proposed legislation, if enacted into law, would alter current spending and revenue levels.
(b) Violation. Treasury will consider a State or Territory to have used funds to offset a reduction in net tax revenue if, during a reporting year:
(1) Covered change. The State or Territory has made a covered change that, either based on a reasonable statistical methodology to isolate the impact of the covered change in actual revenue or based on projections that use reasonable assumptions and do not incorporate the effects of macroeconomic growth to reduce or increase the projected impact of the covered change, the State or Territory assesses has had or predicts to have the effect of reducing tax revenue relative to current law;
(2) Exceeds the de minimis threshold. The aggregate amount of the measured or predicted reductions in tax revenue caused by covered changes identified under paragraph (b)(1) of this section, in the aggregate, exceeds 1 percent of the State’s or Territory’s baseline;
(3) Reduction in net tax revenue. The State or Territory reports a reduction in net tax revenue, measured as the difference between actual tax revenue and the State’s or Territory’s baseline, each measured as of the end of the reporting year; and
(4) Consideration of other changes. The aggregate amount of measured or predicted reductions in tax revenue caused by covered changes is greater than the sum of the following, in each case, as calculated for the reporting year:
(i) The aggregate amount of the expected increases in tax revenue caused by one or more covered changes that, either based on a reasonable statistical methodology to isolate the impact of the covered change in actual revenue or based on projections that use reasonable assumptions and do not incorporate the effects of macroeconomic growth to reduce or increase the projected impact of the covered change, the State or Territory assesses has had or predicts to have the effect of increasing tax revenue; and
(ii) Reductions in spending, up to the amount of the State’s or Territory’s net reduction in total spending, that are in:
(A) Departments, agencies, or authorities in which the State or Territory is not using funds; and
(B) Departments, agencies, or authorities in which the State or Territory is using funds, in an amount equal to the value of the spending cuts in those departments, agencies, or authorities, minus funds used.
(c) Amount and revenue reduction cap. If a State or Territory is considered to be in violation pursuant to paragraph (b) of this section, the amount used in violation of paragraph (a) of this section is equal to the lesser of:
(1) The reduction in net tax revenue of the State or Territory for the reporting year, measured as the difference between the State’s or Territory’s baseline and its actual tax revenue, each measured as of the end of the reporting year; and,
(2) The aggregate amount of the reductions in tax revenues caused by covered changes identified in paragraph (b)(1) of this section, minus the sum of the amounts in identified in paragraphs (b)(4)(i) and (ii) of this section.