Tax

Supreme Court to Rule on Tax Incentives

Court will hear the appeal by Ohio and DaimlerChrysler; perhaps 40 states now offer similar credits in exchange for corporate funding of major proj...
Dave Cook and Stephen TaubSeptember 28, 2005

The Supreme Court announced yesterday that it will hear an Ohio case that may affect the tax breaks that municipalities offer to companies in exchange for funding major capital projects.

In 1998, the city of Toledo and the state of Ohio offered DaimlerChrysler Corp. 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 Wall Street Journal explained earlier this year. Consumer advocate Ralph Nader then spearheaded a group that filed a lawsuit challenging the tax plan as “corporate welfare.”

Last September a three-judge panel of the Sixth Circuit Court of Appeals in Cincinnati 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.” After the full appeals court refused to reconsider that decision, the state of Ohio and DaimlerChrysler appealed to the Supreme Court.

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The decision under appeal is binding only on companies in Ohio, Michigan, Kentucky and Tennessee — the four states under the jurisdiction of the Sixth Circuit — but the Supreme Court’s ruling will have national repercussions. 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.

Uncertainty about the constitutionality of Ohio programs “has thrown into disarray the job-creation efforts and economic planning of states and localities across the nation, while disrupting the investment decisions of thousands of businesses,” stated a filing by Charles Rothfeld, the attorney for DaimlerChrysler, according to the Associated Press.

Terry Lodge, who is representing taxpayers and three small businesses, reportedly wrote in a filing that “a clear statement of the unconstitutionality of discriminatory state tax incentives will free all the states from the necessity of engaging in an escalating competition over incentives that deprives them of needed revenues, while gaining a meaningful competitive advantage for none.”

Aris Melissaratos, Maryland secretary of Business and Economic Development, agreed that if all states “have to play by the same rules, I am not worried about repercussions,” according to The Washington Post. “Then we can compete on substantive competitive elements.”

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