Attorney General Ken Paxton is praising a federal court ruling for temporarily pausing a law that imposes significant costs on tens of millions of small businesses through burdensome regulations.
On Monday, the U.S. District Court in Eastern Texas issued a preliminary injunction against the law, which requires entities incorporated under state law to disclose personal and sensitive information of stakeholders to the U.S. Department of the Treasury.
The law, titled the Corporate Transparency Act, was passed in 2021 in the massive defense measure approved by Congress after overriding President Donald Trump’s veto.
Attorney General Ken Paxton later filed an amicus brief to support Texas small businesses.
“The so-called ‘Corporate Transparency Act’ was an unconstitutional attempt by the federal government to undermine States’ authority and crush small businesses under regulations, fines, and threats,” explained Paxton.
“I filed an amicus brief supporting Texas small business owners, and it’s a major victory for American entrepreneurs that the nationwide injunction will prevent this law from taking effect.”
Paxton’s brief notes that several different kinds of businesses are exempt from the law, including banks, insurance companies, and businesses with more than 20 employees.
“Though seemingly benign, this federal mandate marks a drastic two-fold departure from history. First, it represents a Federal attempt to monitor companies created under state law—a matter our federalist system has left almost exclusively to the several States,” read the Monday ruling.
“Second, the CTA ends a feature of corporate formation as designed by various States—anonymity.”
The plaintiffs of the case argued that the act violates the promises given in the Constitution to the states and the people.
“So the CTA’s requirements are no mere inconvenience,” the court’s opinion continued.
“Apart from being illegal, they hurt Texas and the people that do business in Texas and otherwise add value to this State in real and lasting ways. And it should be invalidated.”
The defendants in the case argue that they can constitutionally enforce the Corporate Transparency Act through the Commerce Clause and the Necessary and Proper Clause.
“The Government argues that the Commerce Clause authorizes the CTA because “it regulates the channels of, and entities in interstate commerce,” the court’s opinion further stated.
Paxton explains in a press release that the penalties for non-compliance with the law include fines of up to $500,000 and 10 years in jail.
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