In a dramatic overnight vote during the Senate's budget reconciliation, Senators voted 99-1 to remove a controversial 10-year federal moratorium on state artificial intelligence regulation from President Trump's sweeping tax and spending package, known as the "One Big Beautiful Bill Act." This represents a significant defeat for major technology companies that had lobbied extensively to prevent a "patchwork" of state AI regulations. State and local governments now retain full authority to regulate AI technologies, creating a complex compliance landscape for AI companies and users across all industries.
The Vote
- Final Tally: 99-1 to strike the AI moratorium provision
- Lone Dissenter: Senator Thom Tillis (R-NC) was the only senator voting to retain the moratorium
- Timing: Early morning hours of July 1, 2025, during extended budget negotiations
- Amendment Sponsor: Senator Marsha Blackburn (R-TN), co-sponsored by Senators Ed Markey (D-MA) and Maria Cantwell (D-WA)
Legislative History and Bipartisan Opposition
The original House-passed version of the bill would have prevented states from "limiting, restricting, or otherwise regulating artificial intelligence models, artificial intelligence systems, or automated decision systems entered into interstate commerce" for ten years. The AI moratorium was introduced in Part 2, SEC. 43201(c) of a much broader bill addressing a range of issues, including taxes and healthcare, which meant it initially received limited public attention.
On May 16, 2025, 44 bipartisan state attorneys general ("AGs") led by California AG Rob Bonta and AGs from Vermont and Colorado formally opposed the AI regulation moratorium. The AGs warned that federal preemption would prevent states from addressing urgent risks, including deepfake scams, discriminatory algorithms, and deceptive AI marketing. Their letter emphasized the states' critical role in enforcing existing consumer protection and civil rights laws, while comprehensive federal AI governance remains absent.
The bill was subsequently modified in the Senate to only restrict states from regulating AI if they sought access to a new $500 million federal AI infrastructure fund, a move that bipartisan state legislators and AGs have condemned as coercive.
Google (Alphabet) and OpenAI actively pushed for the federal preemption arguing that state-by-state regulations would create compliance burdens hampering innovation and advocating for uniform federal standards. The moratorium faced unprecedented bipartisan opposition from:
- Consumer protection groups
- Labor unions and civil rights organizations
- Faith-based organizations
- State legislators and attorneys general across party lines
- Child safety advocates
The Opposition argued that it is:
- premature federal preemption before adequate protections exists
- against prior policy to let the states serve as "laboratories of democracy" for emerging technology governance
- insufficient to address concerns about protecting children, workers, and vulnerable communities
To help appease the opposition, Senator Ted Cruz (R-TX), Chair of the Senate Commerce Committee, negotiated a compromise with Senator Blackburn that would have:
- Reduced the moratorium from 10 years to 5 years
- Allowed limited state regulation for child online safety and artist voice protection
- Required any state regulations to not impose "undue or disproportionate burden" on AI development
However, Blackburn withdrew support for this compromise before the final vote, stating the language remained "not acceptable to those who need these protections the most." Senate Majority Leader and Commerce Committee leadership expressed frustration with the provision's removal but prioritized advancing the underlying budget reconciliation process.
What This Means for Businesses
Businesses should be prepared to navigate varying state and local AI regulations, which may result in additional compliance requirements across jurisdictions by taking the following steps:
- Compliance Audit: Review current AI systems against existing state regulations
- Legal Inventory: Catalog state laws potentially applicable to AI operations and monitor developments in key markets.
- Risk Assessment: Evaluate exposure across different state jurisdictions
- Regulatory Strategy: Develop a comprehensive state-by-state compliance framework
- Policy Engagement: Consider participation in state regulatory proceedings
- Business Planning: Integrate regulatory complexity into product development timelines
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
