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States Fight to Reinstate Business Tax Credits

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Sept. 29, 2004--Kentucky, Tennessee, and Michigan have joined Ohio in launching a legal counterattack to try and reinstate a popular business tax credit that was struck down by the 6th U.S. Circuit Court of Appeals earlier this month.

In a unanimous decision reached on Sept. 2, a three-judge panel ruled that a $281-million investment tax credit given by Ohio to auto manufacturer DaimlerChrysler AG back in 1998 was unconstitutional. The decision has touched off a firestorm of protest from state and local business leaders who feel that tax credits are a critical tool to help lure jobs into their state economies.

"It could put us back in the position of having to offer direct cash subsidies to businesses," said Kentucky Deputy Attorney General Denis Fleming. "Kentucky can ill afford to do that because we don't have the economic base of some of our surrounding states."

The court stated that tax credits like those given to DaimlerChrysler to build a Jeep plant in Toledo violate the interstate commerce clause of the U.S. Constitution. The court found that Ohio's tax credits are illegal for doing precisely what they were intended to: doling out incentives for companies to set up shop in the state.

The crux of the Ohio's rebuttal to the court's ruling is that by its very nature, business is one-sided.

"Any growth in one state must, at some level, come at the expense of development in other states," said Ohio Attorney General Jim Petro in his filing for an appeal. The outcome of the appeal has potentially far-ranging implications as a report issued by the state of New York in 1996 found that 35 states have issued some sort of tax credit to attract new business.


DARREN DAHL is a contributing editor at Inc. Magazine, which he has written for since 2004. He also works as a collaborative writer and editor and has partnered with several high-profile authors. Dahl lives in Asheville, NC.




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