Supreme Court Hears Investment Tax Credits Case

Article excerpt

The Supreme Court recently heard oral arguments in an important case for municipalities and states on whether the use of investment tax credits is constitutional.

The result in Wilkins, et al. v. Cuno, et al. (No. 04-1724) and its companion case, DaimlerChrysler Corp. v. Cuno et al. (No. 04-1704), could affect whether the courts or legislatures set economic development policy.

In questions to the attorneys, the justices seemed wary of the argument that Ohio's tax incentives thwarted interstate commerce.

The Supreme Court's first hurdle, however, is to decide whether the taxpayers challenging the tax incentives have legal standing to do so.

The justices used the majority of the hour-long argument to pepper the attorneys on this procedural question. Theodore Olsen, representing DaimlerChrysler, argued that the individual taxpayers and small business owner who challenged the incentives could not bring a general grievance against the use of tax incentives because they did not suffer a direct injury that a decision in their favor would remedy.

Counsel for the taxpayers countered with an inventive argument that the tax incentive question should be "bootstrapped" onto a particular claim arising from the matter that the courts below granted standing. The justices appeared to reject this argument because it would require the court to deviate from precedent dramatically.

The Cuno case concerns a 1998 agreement negotiated between the City of Toledo and the DaimlerChrysler Corporation. Under the agreement, DaimlerChrysler would construct a new $1.2 billion vehicle-assembly plant near an existing facility located in an economically distressed area, which would provide the Toledo region several thousand new jobs. In return, the city and two local school districts agreed to provide approximately $280 million through local property tax exemptions and an Ohio investment tax credit.

The Court of Appeals for the Sixth Circuit, which includes Ohio, Michigan, Tennessee and Kentucky, upheld the property tax exemptions, but ruled for the taxpayers and overturned Ohio's investment tax credit as unconstitutional. …