The war on incentives kicked into high gear recently, with two high-profile cases — one in Ohio and the other in North Carolina — that involve challenges to the ability of state governments to grant financial incentives in order to attract major business expansions.
Last month, the U.S. 6th Circuit Court of Appeals, based in Cincinnati, let stand an earlier ruling by a three-member panel of its judges that a $280 million incentive package granted to DaimlerChrysler by the state of Ohio was unconstitutional because it unfairly interferes with interstate commerce.
The incentive package in question involves DaimlerChrysler’s decision to build an assembly plant next to its Jeep plant in Toledo. The court ruled — and I’m not making this up — that Ohio’s tax credit was unconstitutional because it offered incentives to a company only if it chose to locate its project in Ohio, but not if that same company chose to locate the project in, say, Massachusetts.
Ohio, which is one of about 40 states that offer various incentives to attract business investment, said that it will appeal the case (Cuno vs. DaimlerChrysler Inc.) to the U.S. Supreme Court.
The other case, which has not yet evolved into a lawsuit, involves Dell Computer’s decision to site a 400,000 square foot manufacturing plant and distribution center in Winston-Salem, N.C.
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While it is certainly the business of Ohio taxpayers how their state government spends its tax dollars, it’s not a federal issue. If it were, then lawyers should also be in the courts suing states that have no corporate income tax, like Texas, or states that have no sales tax, like Oregon. |
In order to attract Dell, the state agreed to provide up to $240 million in tax credits during the next 15 years, based on Dell attaining certain job creation targets. Dell’s initial capital investment will be around $100 million, and the state projects the facility to have a $24.5 billion impact on the its economy during the next 20 years, while generating an estimated $743 million in net revenue.
Sounds like a reasonable deal, if you believe the projections. If you don’t, then it doesn’t. That’s what politics is all about. Let both sides fight it out in the political arena. Both deals have created quite a ruckus among foes of tax incentives for business attraction. And while both seem to be about the same thing — against generous financial incentives given to private corporations as an incentive to locate in, or remain in, a particular locality — they are, in truth, completely opposite.
The Dell package — for the time being, at least — is being waged by North Carolina residents about how the state administers its incentive program with tax dollars.
The Ohio case, on the other hand, is headed up by a Boston lawyer recruited by Ralph Nader to challenge the right of individual states to control their internal taxes, when such taxes might cause a company located in one state to move its operations to another state because it has a more favorable tax climate.
It would be one thing if Ohio was exempting DaimlerChrysler from federal taxes — it isn’t. It’s only exempting it from certain Ohio taxes, and any cash or other incentives given to the automaker come from Ohio taxpayers.
While it is certainly the business of Ohio taxpayers how their state government spends their tax dollars, it’s not a federal issue. If it were, then lawyers should also be in the courts suing states that have no corporate income tax, like Texas, or states that have no sales tax, like Oregon.
Clearly, differing local tax climates have an impact on the relative business competitiveness of the states. However, so do differences in weather, topography and demography.
Regardless of where one stands in the overall “war on incentives,” it’s clear to me that the Ohio case makes for bad law and, with any luck, will be overturned by the U.S. Supreme Court — and deservedly so.
Whether it will is an open question, particularly in a country where aging baby boomers can still win lawsuits where they claim they had no idea cigarette smoking was hazardous to their health.
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