September 10, 2004 -- A recent ruling by the Cincinnati-based 6th United States Court of Appeals threatens to disrupt how states lure big businesses into setting up shop within their borders.
A three-judge panel ruled that a $281-million investment tax credit given by the state of Ohio to auto manufacturer DaimlerChrysler AG back in 1998 was unconstitutional.
The court said that the tax credit, issued as an incentive for DaimlerChrysler to build a Jeep plant in the city of Toledo that now employs 3,800 workers, violated the interstate commerce clause of the U.S. Constitution because it gives preferential treatment to companies operating in Ohio versus other states.
"While we may be sympathetic to efforts by the city of Toledo to attract industry into its economically depressed areas, we conclude that Ohio's investment tax credit cannot be upheld," said Judge Martha Craig Daughtrey in a statement.
A spokesman said the Ohio Department of Development planned to appeal the decision.
The court holds immediate jurisdiction over Ohio, Michigan, Kentucky and Tennessee. However, if the decision holds, it could have a far-ranging impact: A 1996 report issued by the state of New York found that 35 of the 45 states with corporate income tax programs have issued some sort of investment tax credit, according to the National Taxpayers Union.
The decision resulted from a lawsuit filed against the state by a consortium of 12 local individuals and three businesses led by local attorney Terry Lodge, Northeastern University law professor Peter Enrich and independent presidential candidate Ralph Nader.
"Today's historic decision in the DaimlerChrysler case will result in the partial reversal of one of the most outrageous examples of corporate welfare in memory," said Nader in a statement on his website.