## Facts

- Congress enacted the Payment in Lieu of Taxes Act (PILT Act), requiring annual payments to qualifying “units of general local government” and providing that the recipient “may use the payment for any governmental purpose.”
- Lawrence County, South Dakota received PILT payments for eligible federal lands within the county.
- South Dakota law required counties to distribute “payments in lieu of tax” proceeds in the same proportions as local property tax revenues.
- Because the county distributed roughly 60% of tax revenues to local school districts, the state formula would require it to remit about 60% of PILT payments to Lead-Deadwood School District No. 40-1.
- The County refused to distribute any portion of its PILT funds to the School District, asserting federal law granted the County discretion over use of the payments.
- The School District sought to compel distribution under the state statute.

## Issues

1. Whether a state statute requiring a county to allocate federal PILT payments according to state tax-distribution formulas is preempted by the PILT Act’s provision that the recipient local government “may use the payment for any governmental purpose.”

## Decision

- The Supreme Court reversed the South Dakota Supreme Court in a 7–2 decision.
- The Court held the South Dakota allocation statute was invalid under the Supremacy Clause as applied to PILT payments.
- The Court concluded the state law conflicted with Congress’s objective that PILT funds be placed at the disposal of the recipient local government to spend as it chooses for governmental purposes.

## Legal Principles

- Conflict (obstacle) preemption applies when a state law stands as an obstacle to the accomplishment and execution of Congress’s purposes and objectives.
- Where Congress directs federal funds to a specified local governmental recipient and authorizes that recipient to use the funds for any governmental purpose, a state may not reallocate control of those funds through mandatory distribution rules.
- Administrative interpretations by the federal agency administering a federal spending program may receive substantial weight when construing statutory text bearing on the scope of recipient discretion.

## Conclusion

Because the PILT Act was intended to give recipient local governments discretion to apply federal in-lieu payments to local needs arising from federal lands, South Dakota’s mandatory distribution rule diverted control away from the county and frustrated federal objectives, making it preempted under the Supremacy Clause.


Lawrence County v. Lead-Deadwood Sch. Dist. No. 40-1, 469 U.S. 256 (1985)