The U.S. Supreme Court finally ruled on a landmark tax incentive case involving the rights of individual states to provide tax breaks to corporations who choose to locate manufacturing and other facilities within the borders of those states. The ruling was viewed as key since almost every state in the country has some sort of dispute involving similar issues.
The answer?
Nothing. Well, almost nothing.
Rather than tackle the issue of whether individual states have the Constitutional right to provide incentives to in-state corporations at the expense of others, the Supreme Court took the easy way out: they ruled that the taxpayers in Ohio who brought the suit did not have standing to do so. This renders the whole case – and thus, the key issue – moot for the time being.
The case, Cuno v. Daimler-Chrysler, was dismissed by a unanimous vote on the Court.
The Supreme Court will take a break today from the phenomenon that is Anna Nicole consider whether tax breaks that Ohio passed in order to woo DaimlerChrysler to build an assembly plant are constitutional.
What Ohio did wasn’t unusual. In fact, many states and some municipalities (such as our own City of Philadelphia!) use tax breaks and tax incentives to attract companies to do business in their area rather than flee to what might otherwise be more attractive tax venues elsewhere. And by "many", I mean at least 45 states – similar suits are pending in North Carolina, Minnesota, Nebraska and Oklahoma. And for that reason, this case will be closely watched by a number of folks with vested interests in promoting economic development in their own backyards.
The case, Cuno v. DaimlerChrysler, was brought by Ohio resident Charlotte Cuno and other residents of Ohio who claim that tax breaks and incentives granted to Daimler Chrysler in 1998 violated the commerce clause of the U.S. Constitution. The tax package granted to DaimlerChrysler offered up to $280 million in tax incentives if Daimler would choose to put its new Jeep facility in Ohio as opposed to another state. In exchange for locating the plant in Toledo, DaimlerChrysler received an investment tax credit, worth 13.5% for investments it made in the project over a two-year period. It also received a 10-year exemption from property taxes.
The constitutional clause in question authorizes Congress to "regulate Commerce with foreign Nations, and among the several States," and prohibits states from enacting taxes that discriminate against interstate commerce.
A U.S. District Court ruled in favor of DaimlerChrysler initially. However, in 2004, the U.S. Court of Appeals in Toledo found that Ohio had, in fact, violated the commerce clause by creating a tax structure that benefits companies only if they invest in Ohio. A company who chooses not to invest in Ohio would, under the same set of circumstances, have a higher tax liability.
Despite the early arguments, a decision is not expected until July.
