Tax

Court Upholds Ruling Against Tax Breaks

Perhaps 40 states dole out similar credits in exchange for corporate funding of major projects.
Stephen TaubJanuary 21, 2005

The Sixth Circuit Court of Appeals in Cincinnati affirmed a ruling that Ohio violated the U.S. Constitution’s interstate commerce clause, reported The Wall Street Journal. That ruling could ultimately rein in the tax breaks that municipalities often dole out to companies in exchange for funding major projects such as factories and stadiums.

In 1998, the city of Toledo and the state of Ohio offered DaimlerChrysler a $280 million tax break in exchange for a $1.2 billion plan to expand a Jeep factory that the company was considering closing down, the Journal explained. Consumer advocate Ralph Nader then spearheaded a group that filed a lawsuit challenging the tax plan as “corporate welfare.”

The plaintiffs lost in a lower court, noted the paper, but in September a three-judge panel of the appeals court ruled that the tax credit “discriminates against interstate commerce by coercing businesses already subject to the Ohio franchise tax to expand locally rather than out-of-state.” The full appeals court refused to reconsider last year’s decision.

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Bill Teets, a spokesman for the Ohio Department of Development, told the Journal that the state will file an appeal with the Supreme Court and that it will request that the decision not be put into effect so investment tax credits can continue to be issued. Michael Aberlich, director of corporate communications at DaimlerChrysler, told the paper that his company was “disappointed and somewhat bewildered” by the ruling. He added that DaimlerChrysler will consider joining the appeal.

“This is a substantial issue for a lot of companies around the country,” said Quentin Riegel, vice president for litigation at the National Association of Manufacturers, according to the paper. Even though the decision is binding only on companies in Ohio, Michigan, Kentucky and Tennessee — the four states under the jurisdiction of the Sixth Circuit — “it could be a national issue if the Supreme Court decides to take it up,” Riegel told the Journal.

Last year The National Law Journal pointed out that perhaps 40 states offer similar credits, citing plaintiffs’ attorney and Northeastern University law professor Peter D. Enrich.