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U.S. Supreme Court to Decide Constitutionality of State Tax Incentives


Washington, DC — March 1, 2006 — The U.S. Supreme Court will hear oral arguments today in a case which has broad implications for state and local governments and thousands of businesses nationwide. The case, Cuno, et al., v. DaimlerChrysler, et al., involves the constitutionality of Ohio’s Investment Tax Credit (ITC) — which is nearly identical to credits offered in 40 other states. The Ohio ITC was ruled unconstitutional by the U.S. 6th Circuit Court of Appeals in October 2004.

Under the “Dormant Commerce Clause Doctrine” the 6th Circuit declared that the Ohio ITC violated the Constitution by “coercing” companies to invest in Ohio. “Should the Supreme Court uphold the 6th Circuit’s reasoning or adopt a similar analysis to strike down Ohio’s ITC, literally hundreds of other common state tax incentives and credits could fall”, said Douglas L. Lindholm, president and executive director of the Council On State Taxation (COST).

Court May Pass on the Merits and Rule on Standing

The Court also asked both parties to brief the Court on whether the original Plaintiffs had “standing” to challenge Ohio’s ITC in the first place. “Standing is the basic threshold question a party must meet to determine whether they can adjudicate the matter”, said Diann Smith, COST’s General Counsel. “Other than cases involving the Establishment Clause, the Federal Courts have consistently frowned upon cases involving taxpayers seeking to air general grievances. The fact that the Court raised the issue of standing of its own volition obviously indicates that standing is a matter they want to consider, and it is possible they could dismiss the case on these procedural grounds and never address the constitutionality of Ohio’s ITC.”

Congress’ Role Under the Commerce Clause

The U.S. 6th Circuit Court’s opinion implicates Congress’ Commerce Clause authority. The Constitution’s affirmative grant of power to the Congress to regulate commerce among the states means that the Congress can overrule U.S. Supreme Court decisions based on the Commerce Clause. As a matter of settled constitutional doctrine, Congress may sanction state legislation that the Court has declared unconstitutional under the Commerce Clause; likewise it may prohibit state action that the Court has declared constitutional under the Commerce Clause.

In response to the 6th Circuit Court’s decision, Federal legislation was introduced in the 109th Congress—the Economic Development Act (S. 1066; H.R. 2471)—that seeks to ensure that State Legislatures retain the authority to decide whether to offer economic development incentives. “From a federal perspective, the question is not whether state economic development incentives work. Rather, the question is whether the debate regarding state economic development incentives should occur in State Legislatures or the federal courts,” said Lindholm. “Federal legislation addressing this issue is the only way to provide clear rules for States and the business community regarding permissible tax incentives.”

About COST
COST is a nonprofit trade association based in Washington, DC. COST was formed in 1969 as an advisory committee to the Council of State Chambers of Commerce and today has an independent membership of 580 major corporations engaged in interstate and international business. For additional information please visit


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