OHIO Court: Investment tax credit is unconstitutional

A lawyer calls the ruling a victory for taxpayers and small businesses.
CINCINNATI (AP) -- Ohio's investment tax credit is unconstitutional because it grants preferential treatment to companies to expand within the state, rather than in other states, a federal appeals court ruled Thursday.
The ruling could be cited to challenge similar tax-break programs used by up to 40 other states to promote economic development, said a lawyer who argued against Ohio's program.
"It is a tremendous win for taxpayers, for small businesses that are just local and couldn't qualify for something like this as an incentive," said lawyer Terry Lodge of Toledo.
The appellate court's ruling could hamper many states in their competition to use tax breaks to lure corporate investment, National Taxpayers Union spokesman Pete Sepp said Thursday.
DaimlerChrysler had not decided how it will respond, company spokeswoman Mary Gauthier said. Ohio Attorney General Jim Petro plans to challenge Thursday's ruling, spokeswoman Kim Norris said.
DaimlerChrysler tax break
A dozen taxpayers and three small businesses in Toledo had sued over the investment tax credit that Ohio granted DaimlerChrysler AG to build a Jeep plant. The Toledo plant opened in 2001.
Officials said the total value of the tax incentives for DaimlerChrysler was about $280 million, including the investment tax credit and a 10-year local property tax exemption.
The 6th U.S. Circuit Court of Appeals reversed a lower court's 2001 ruling and said Ohio's investment tax credit violates the U.S. Constitution.
"Any corporation currently doing business in Ohio, and therefore paying the state's corporate franchise tax in Ohio, can reduce its existing tax liability by locating significant new machinery and equipment within the state, but it will receive no such reduction in tax liability if it locates a comparable plant and equipment elsewhere," Judge Martha Craig Daughtrey wrote for the unanimous three-judge appeals panel.
The Constitution authorizes Congress to regulate commerce and "implicitly limits the state's right to tax interstate commerce," Daughtrey wrote.