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Friday, September 03, 2004

Law - Significant tax ruling may impact Indiana

"Court says tax break is illegal: States use tactic to attract jobs" is the headline to this story today in the Louisville Courier Journal that begins:

A tax break used by Kentucky and other states to entice companies to buy equipment and add jobs may be eliminated under a ruling yesterday by a federal appeals court.

The 6th U.S. Circuit Court of Appeals in Cincinnati ruled unconstitutional an Ohio law that gives tax incentives to companies that invest in the state rather than expand out-of-state. The court said the law is unconstitutional because it grants preferential treatment.

The three-judge panel's decision covers the four states in its circuit: Kentucky, Ohio, Tennessee and Michigan.

Though an appeal is planned, the initial concern is that the ruling, which goes into effect immediately, could put the four states at a disadvantage keeping or recruiting businesses.

Judge Martha Craig Daughtrey wrote for the unanimous appeals panel that allowing companies that put new equipment in the state to pay lower taxes than others violates the U.S. Constitution.

Kentucky economic development secretary Gene Strong expressed concern after learning of the ruling.

"I think it's equitable to offer incentives to existing businesses who are growing in Kentucky at the same level as you would to a new business you were trying to attract," Strong said.

"We're in the business of trying to provide opportunities for Kentuckians. If that means having to step up to provide incentives to businesses, I think that's fair." * * *

The ruling stems from a Toledo case in which a group of taxpayers and small businesses sued over an investment tax credit that Ohio granted DaimlerChrysler to build a Jeep plant employing 3,800 workers. The plant, which opened in 2001, produces the sport utility vehicle Jeep Liberty.

Teets said that while Ohio could simply take the money it uses in tax incentives and divert it to other incentives that "pass constitutional muster," it would be harder to compete against states like Indiana and others outside the circuit.

"In Ohio, it's a very widely used tax credit, and certainly states use every tool that they have to make their state as competitive as possible," he said. "It makes it difficult to compete on a broad scale if you are the only (region) being penalized."

Other stories include this one in the Detroit Free PressHere is the opinion in the case, Cuno v. DaimlerChrysler Inc.

Posted by Marcia Oddi on September 3, 2004 02:23 PM
Posted to General Law Related