US states are chafing at a provision in the $1.9 trillion COVID relief bill that Congress enacted in March that could tie state and local government hands on enacting new tax relief for renewable energy.

Some commentators have suggested the provision could also prevent local officials from granting new property tax abatements for projects.

The provision would bar states from using $350 billion that the bill gives state and local governments to help with pandemic-related needs to cut taxes.

The prohibition says that states may not “either directly or indirectly offset a reduction in the net tax revenue of such State or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.”

The prohibition lasts through 2024.

Sixteen states have sued the US Treasury to block implementation of the ban. West Virginia and 12 other states filed suit in a federal district court in Alabama on March 25. Three other states had already sued separately.

West Virginia and Mississippi have been considering this year whether to repeal their state income taxes, but efforts in both states have been abandoned. West Virginia’s share of the $350 billion may account for as much as 25% of the state budget.

US Treasury Secretary Janet Yellen said in a letter to Republican state attorneys general in late March that the provision does not prevent states from eliminating one type of tax and plugging the budget gap with spending cuts or offsetting tax increases.

The US Treasury said in a separate statement on April 7 that the provision does not prevent states from conforming their tax laws to adopt any federal tax cuts. Most state income tax laws piggyback on the federal system by having taxpayers use the income they reported on their federal income tax returns as a starting point for their state calculations. However, many state legislatures must affirmatively embrace new federal tax law changes before they apply to state tax calculations.

The Treasury is working on more comprehensive guidance.