Canton Repository

March 2, 2006

Supreme Court hears arguments over tax incentives for Ohio plant

By Paul M. Krawzak
Copley News Service

WASHINGTON - Attorneys for DaimlerChrysler, the state of Ohio and a taxpayer group argued before the U.S. Supreme Court on Wednesday over the constitutionality of a state tax incentive in a case that could have national ramifications for economic development tools used by states to lure business.

The taxpayers who challenged the investment tax credit given to DaimlerChrysler in exchange for its decision to build a plant in Toledo in 1998 contend that the tax break violates the U.S. constitutional protection of free interstate commerce by coercing businesses to expand in Ohio rather than in another state.

Meanwhile, attorneys for the state and DaimlerChrysler argued the tax incentive is constitutional as long as it does not penalize out-of-state economic activity.

U.S. Sen. George Voinovich, R-Cleveland, a champion of economic development incentives, has warned that if states lose their authority to offer tax breaks, they will be less able to compete with nations like India and China.

Several of the justices sharply questioned an attorney for the taxpayer group.

“What you’re arguing here is the mere fact of providing a subsidy violates the Commerce Clause,” Justice Antonin Scalia said. The Constitution’s Commerce Clause gives Congress the right to regulate trade between states.

Peter Enrich, the taxpayers’ attorney, responded by likening the investment tax credit to “a tariff by another name.” In the past, the court has ruled against states’ use of measures that act like tariffs and restrict the movement of goods between states.

In late 2004, the taxpayers’ group won a decision from the 6th U.S. Circuit Court of Appeals, which found the tax break unconstitutional.

DaimlerChrysler and the state appealed the decision to the Supreme Court, which is expected to issue a ruling this summer.

The investment tax credit provided to Chrysler reduces the company’s state corporate franchise tax burden based on its spending on plant and equipment in Ohio. It was part of a $280 million incentive package that included a 10-year break on paying property taxes when the automaker located its $1.2 billion Jeep assembly plant in Toledo.

Theodore B. Olson, an attorney for DaimlerChrysler, said virtually every state offers incentives to attract economic activity and he cautioned the high court not to “nationalize state tax systems.”

Voinovich, who was governor when DaimlerChrysler built the Toledo plant, is pushing legislation that he says would spell out states’ authority to offer tax incentives and supersede an adverse ruling from the Supreme Court.

The legislation, introduced by Voinovich last year, is co-sponsored by Sen. Mike DeWine, R-Cedarville, and several other senators from both parties.

Rep. Patrick Tiberi, R-Columbus, has sponsored an identical measure in the House. It has a long list of co-sponsors, including Rep. Bob Ney, R-Heath; John Boehner, R-West Chester, and Deborah Pryce, R-Toledo.

Gov. Bob Taft and national organizations representing counties, cities, mayors and manufacturers also back the legislation.