A taxpayers group led by Charlotte Cuno challenged the $280m-worth of tax benefits that state and Toledo city officials granted the car manufacturer to expand its existing plant, on the grounds that they were a violation of the US Constitution’s Commerce Clause.
The district court found in favour of DaimlerChrysler. However, on appeal to the 6th Circuit Court, that decision – which applies in the states of Ohio, Michigan, Kentucky and Tennessee – was overturned in favour of Cuno.
If the Supreme Court upholds the 6th Circuit Court’s decision, the state and local corporate tax breaks offered in about 41 US states will be sharply curtailed, if not eliminated.
Peter Enrich, a professor at Northeastern University School of Law and lead counsel for Cuno for the past five years, said such incentives resulted in a race to the bottom in state corporate taxation.
Although businesses do not view that as a bad thing, Mr Enrich said that uneven tax revenues ultimately translated into a poorly funded education system and, by extension, a badly trained workforce – ironically a top issue in site selection.
Mr Enrich, who will be presenting the arguments before the Supreme Court next year, said court precedent was on his side.
“The Supreme Court has been deciding cases about discriminatory state tax regimes going back 150 years. It has a long and steady pattern of ruling that state tax measures that discriminate in favour of in-state economic activity – which tax incentives for new businesses do – are unconstitutional,” he said. The Commerce Clause is straightforward on this issue, he said: states cannot use their tax systems to treat two businesses differently.
The wild card, he and others say, will be the question of ‘standing’ – that is, whether the plaintiff had the right to bring the challenge into the federal court system. “It is a very arcane and complex issue and it is difficult to predict how the court will come out on this issue,” said Mr Enrich.
If the court decides that Cuno does not have standing, the case will go back to the Ohio state court system, which would make it a local issue once again – to the relief of businesses elsewhere in the country that rely on such incentives.