Tax Battle Moves to Supreme Court
March 1, 2006--Ohio small-business owners and other groups opposed to state tax incentives for large corporations took their case to the Supreme Court on Wednesday, arguing that such deals harm local taxpayers and discriminate against businesses that choose to invest in other states.
Similar cases are pending in several other states, including Minnesota, Nebraska, and North Carolina, and could affect billions of dollars in state tax breaks written off by manufacturers every year.
The Ohio case hinges on $280 million in tax credits awarded to DaimlerChrysler in 1998, after the automaker agreed to locate a new $1.2 billion SUV assembly plant in Toledo. The company also got a 10-year exemption on property taxes. The plant opened in 2001.
Like most states, Ohio uses tax credits to coax corporations into establishing local manufacturing facilities -- and create jobs. According to Ohio state officials, tax breaks have brought in more than $30 billion in business investments since 1995.
Both the property-tax exemption and the tax credits awarded to DaimlerChrysler were upheld by a U.S. District Court -- after the state was sued by a group of local taxpayers -- but deemed unconstitutional in the Sixth Circuit Court of Appeals in September 2004 on the grounds that it hampered fairness in interstate trade.
In her decision, Judge Martha Craig Daughtrey said Ohio's tax-credit scheme ran counter to the Commerce Clause of the U.S. Constitution, which allows Congress to regulate commerce among states and guard against state action that unduly burdens interstate commerce.
In a brief submitted for the Supreme Court case, lawyers for DaimlerChrysler argued the tax breaks were not the "type of anticompetitive protectionist measure" prohibited by the Commerce Clause, but rather a subsidy for in-state investment.
On Wednesday, Peter Enrich, a Northeastern University law professor who represented a group of Ohio businesses and taxpayers, argued that the tax incentives ultimately hurt local taxpayers, who are left shouldering the burden of lost state revenue.
A decision is expected by June 2006.