Court ruling upholds vital tax relief for TN, KY small businesses

NASHVILLE— NFIB State Director Jim Brown says a federal court’s decision upholding Tennessee’s right to use federal stimulus funds for state tax relief is a big victory for small businesses still recovering from the economic downturn caused by the COVID-19 pandemic.

“Last year, Tennessee was able to use federal relief funds to help small businesses avoid higher taxes, in particular unemployment taxes,” Brown said. “We’re pleased the court agreed that states should have the flexibility to establish tax policies that will help continue our post-pandemic economic recovery.”

In July, the NFIB Small Business Legal Centerfiled an amicus brief in the U.S. District Court for the Eastern District of Kentucky supporting Tennessee and Kentucky in their challenge to the provision of the American Rescue Plan Act of 2021 that sought to prevent states from using federal funds for state tax relief for small business owners. The court decided in the states’ favor on Friday, Sept. 24.

“The past 18 months have taken a tremendous toll on small businesses,” NFIB Kentucky State Director Tom Underwood said. “They can’t afford to pay high taxes. Kentucky needs the freedom to spend the money from the American Rescue Plan in a way that makes sense for Kentucky.”

Karen Harned, executive director of NFIB’s Small Business, said, “Congress intended the American Rescue Plan to relieve some of the financial pressure caused by the pandemic, but a provision that blocked states from using the relief funds to offset state tax cuts would have eroded state sovereignty and hurt local businesses.”

Earlier, Kentucky and Tennessee filed a lawsuit challenging the provision of the American Rescue Plan (ARP) Act that prevents states from using the funds they receive from the law to offset tax cuts.

The American Rescue Plan Act of 2021 made funds available to states if and only if states agree to not pass any laws or take any administrative actions that decrease their net revenue, whether that decrease comes through tax credits, rebates, reductions in tax credits, or new or expanded deductions. In its amicus brief, NFIB urged the court to block this unprecedented tax mandate and grant the states’ motion for a preliminary injunction.

The NFIB Small Business Legal Center protects the rights of small business owners in the nation’s courts. NFIB is currently active in over 40 cases in federal and state courts across the country and in the U.S. Supreme Court.

About NFIB

For more than 75 years, NFIB has been the voice of small business, advocating on behalf of America’s small and independent business owners, both in Washington, D.C., and in all 50 state capitals. NFIB is nonprofit, nonpartisan and member driven. Since our founding in 1943, NFIB has been exclusively dedicated to small and independent businesses and remains so today. For more information, please visit

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