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Wednesday, September 28, 2005

Law - More on "Significant tax ruling may impact Indiana" [Updated]

Over a year ago, on 9/3/04, the ILB posted an entry quoting a story in the Louisville Courier Journal that began:

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.

Yesterday the U.S. Supreme Court agreed to hear that case. This AP story by Gina Holland reports:
The Supreme Court said Tuesday that it will decide how states may use tax incentives to lure companies to build car plants and other projects, a major test of job creation strategies nationwide.

Justices will review an Ohio tax program that had been used thousands of times over the last decade until an appeals court ruled last year that it was unconstitutional.

The law was challenged by taxpayers who contend that state bidding wars over car plants and other development have gotten out of hand, with taxpayers footing the bill. They sued over an investment tax credit that Ohio gave DaimlerChrysler AG to build a Jeep assembly plant that opened in Toledo in 2001.

The car maker and the state of Ohio urged the Supreme Court to take the case, as did the taxpayers. All sides agree that the case could have a sweeping national impact, with virtually every state having some type of incentive program. * * *

The 6th U.S. Circuit Court of Appeals in Cincinnati ruled a year ago that an Ohio tax break for buying new equipment grants preferential tax treatment to companies that expand within the state over those that expand in other states.

States competing for new employers often include tax credits as part of a package deal. * * *

The cases are DaimlerChrysler Corp. v. Cuno, 04-1704 and Wilkins v. Cuno, 04-1724.

See also this 9/16/04 ILB entry.

[Update 9/29/05] The Louisville Courier Journal had this story yesterday, with additional information:

Terry Lodge, lawyer for the taxpayers who challenged Ohio's tax breaks for a Jeep factory in Toledo, said striking down the incentives "will free all the states from the necessity of engaging in an escalating competition over incentives that deprives them of needed revenues, while gaining a meaningful competitive advantage for none."

Consumer advocate Ralph Nader recruited Lodge and Northeastern University law professor Peter Enrich to challenge Ohio's programs. Nader has argued that tax incentives rob states of funds that could be used to help the economically disadvantaged.

Douglas Cole, Ohio's lawyer in the Supreme Court case, said in that state's appeal that competition for employers is fierce.

"The ruling here hamstrings Ohio in its efforts to participate in that struggle," Cole wrote in the appeal.

While the Supreme Court has agreed to hear the case, lawmakers will continue to promote federal legislation to settle the tax question.

In May, U.S. Sen. George Voinovich, R-Ohio, submitted legislation that would declare tax breaks legal. Enrich, though he opposes the bill, has acknowledged that it would settle the case.

Co-sponsors of Voinovich's bill include Kentucky Democratic Rep. Ben Chandler, who proposed similar legislation last year in the House, and both of Kentucky's U.S. senators.

In a press release yesterday, Voinovich said he would continue to promote his legislation.

"Governments and businesses shouldn't have to litigate cases all the way to the Supreme Court in order to find out whether or not a tax incentive is constitutional," Voinovich said.

Posted by Marcia Oddi on September 28, 2005 08:05 AM
Posted to General Law Related