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 DaimlerChrysler 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.
