Supreme Court will decide in Ohio tax case

A federal appeals court struck down Ohio's investment tax breaks.
SCRIPPS HOWARD
WASHINGTON -- Pres Kabacoff wants to rebuild New Orleans as a black Paris, complete with tree-lined boulevards, revitalized housing and rejuvenated businesses, but his plans may never get off the ground without state and local investment tax breaks.
"They're critical for the city's recovery post-Katrina," the Louisiana developer, who heads Historic Restorations Inc., said of his Project Rebirth and other Gulf Coast reconstruction.
Kabacoff will take his message to an American Bar Association meeting this spring to stress what's at stake for each of the 50 states and the nation as a whole in an Ohio case the Supreme Court hears Wednesday that asks if states can use tax credits for economic development.
Some $50 billion a year in state tax incentives will be on the line when the justices take up DaimlerChrysler vs. Cuno, in which a Cincinnati federal appeals court struck down Ohio's investment tax breaks on grounds they unconstitutionally "hinder free trade among the states."
Background
The ruling came in the case of a $281 million investment tax credit Ohio gave DaimlerChrysler for a $1.2 billion update of its Jeep plant in Toledo. The 6th U.S. Court of Appeals said Ohio's tax credit violates the U.S. Constitution's Commerce Clause and the power it vests in Congress "to regulate Commerce ... among the several states."
Ohio alone has granted $30 billion in tax incentives since it enacted the investment tax break in 1995, and Kentucky, Michigan and Tennessee -- also covered by the 6th Circuit ruling -- have their own investment incentives for economic development.
"The Constitution is not an economic suicide pact," Ohio State Solicitor Douglas Cole told the justices in pre-argument filings.
"This radical attack ... simply ignores that Ohio competes for business not only with Tennessee, but also with Taiwan. A constitutional rule that equally disables Ohio and Tennessee leaves both at the mercy of foreign competition."
But the Constitution also was ratified to end the "war between the states," economic and otherwise, that were part and parcel of the Articles of Confederation, Northeastern University law professor Peter Enrich counters.
Consumer activist and corporate welfare critic Ralph Nader recruited Enrich after reading a 1996 law review article in which Enrich theorized that Commerce Clause limits could "save the states from themselves" in the tax-break bidding war to capture corporate investment.
Challengers
The two enlisted Toledo taxpayers Charlotte Cuno, Kim's Auto & amp; Truck Service and others to challenge Ohio and its DaimlerChrysler deal on grounds the potential tax loss came at their expense and threatened public education, roads and other infrastructure investment they consider important.
Enrich, who will argue Cuno's Supreme Court case, says the 6th Circuit decision "casts a dark cloud over incentives all across the country."
Nader calls it a "blow to corporate welfare ... and the exortionate demands by large companies for subsidies from cowering cities and states."
Even though the 6th Circuit decision has applied only to four states, its impact has been felt far and wide. Already:
*Kmart executives rejected Michigan's offer of $45 million in tax breaks to keep its corporate headquarters in Troy, Mich., when Kmart and Sears merged. Instead, Kmart chose to relocate to Sears' suburban Chicago headquarters rather than risk legal limbo.
*A North Carolina court will hear a challenge this spring to $242 million in tax breaks that state officials gave Dell for building a plant in Winston-Salem.
*Northwest Airlines has fought $2.5 million a year in Wisconsin property-tax exemptions for home-state competitors Midwest Airlines and Air Wisconsin.
*Two multimillion-dollar tax-incentive packages for the governor's biotech-research and job-training initiatives are under court attack in Minnesota.
Think tank
Good Jobs First, a Washington think tank founded by Greg LeRoy, is among those urging the Supreme Court to side with Cuno and her fellow Toledo taxpayers.
LeRoy cites IRS data that show state and local taxes make up only 1.2 percent of the typical firm's costs, or 0.8 percent when they're deducted from federal taxes.
He also complains that President Bush signed off on tax-favored Gulf Empowerment Zones and quotes fired Bush Treasury Secretary and former Alcoa CEO Paul O'Neill saying: "I never made any investment decision based on the tax code. If you are giving away money, I will take it ... But good business people do not do things because of inducements."
Even so, the investment landscape outside the courthouse has caught a chill as attorneys and accountants advise corporate clients to ask states to indemnify them in siting agreements should the Supreme Court rule against the states.