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Saturday, February 25, 2006

Law - Use of tax incentives for economic development to be argued before the Supreme Court

This ILB entry from September 03, 2004 is titled "Significant tax ruling may impact Indiana." A quote from the Louisville Courier Journal at the time:

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.

The 6th Circuit decision, the 6th Circuit decision, Cuno v. DaimlerChrysler Inc., is available here. In this September 28, 2005 ILB entry we reported that the U.S. Supreme Court had agreed to hear the case.

Oral argument is set for next Wednesday, March 1, 2006. For an unusual look at the case, see this story from The Northeastern News (the Students' Newspaper of Northeastern University, Boston MA), which reports:

A case will go before the United States Supreme Court March 1 that will represent several years of work - most of it done by Northeastern Law School students and law professor Peter Enrich.

The case, Cuno v. DaimlerChrysler, involves the constitutionality of corporate tax breaks, and stems from an article written by Enrich in the Harvard Law Review in 1996.

"States have been in this race with one another to see who can give the most attractive incentives, usually in the form of tax breaks, to businesses," Enrich said.

These incentives entice large businesses to build in a particular state. Cuno argues such tax breaks violate the U.S. Constitution's commerce clause.

About a year after his article was published, Enrich was contacted by consumer advocate and former presidential candidate Ralph Nader, and he agreed to take up the cause of a group in Toledo, Ohio, including Charlotte Cuno. The group was upset that the state planned to award nearly $300 million in tax incentives to DaimlerChrysler, which planned to put a Jeep plant in the city.

While DaimlerChrysler had the backing of the Ohio Attorney General's Office and a powerful Toledo law firm, the plaintiffs' lawyers "were basically a solo guy … who had never done a tax case, and me," Enrich said. "That was the entire legal team at that time." That's where the students came in.

The Indianapolis Star carried an AP story about the case in its Business section today. Some quotes:
The high court will hear arguments Wednesday about the constitutionality of the tax break Ohio used to persuade DaimlerChrysler AG to build the assembly plant. The decision could have national impact because nearly every state uses tax breaks or other incentives to attract companies.

The former neighbors -- who received legal help from consumer crusader Ralph Nader -- say taxpayers should not have to pay for private businesses wanting to expand or move their operations.

The 6th U.S. Circuit Court of Appeals in Cincinnati sided with the neighbors two years ago, striking down Ohio's practice of granting companies tax credits on new equipment. The court said the practice hinders interstate commerce because the incentives are available only to businesses that invest in Ohio.

Business groups and lawmakers in several states say that ruling could hurt economic development throughout the nation and put U.S. manufacturing at a disadvantage against foreign competitors.

The ruling also could jeopardize tax breaks for job training and research and development that states use to lure businesses, said Dorothy Coleman, vice president for tax and domestic economic policy with the National Association of Manufacturers.

"Incentives play a role in deciding where you're going," she said. "And it affects the abilities of states to attract businesses."

Toledo grew with the glass and auto industries. Its proudest product is the Jeep, which first rolled off the assembly line here in 1941.

To keep Jeep in the city, the state and city put together an incentive package worth about $300 million for a new assembly plant. It was one of the most lucrative packages ever given to a corporation in the U.S. The plant opened in 2001 and has about 3,600 hourly workers.

To clear the way for the factory, the city bought and leveled about 80 homes and 16 businesses. Some homeowners complained that the city offered them less than their homes were worth.

Here is the Medill Journalism School's page on the case, summarizing the issues, etc. Here are links to the merits briefs.

Posted by Marcia Oddi on February 25, 2006 02:23 PM
Posted to General Law Related