Cuno v. Daimler Chrysler Inc

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206 2 Cuno, et al. v. DaimlerChrysler No. 01-3960

ELECTRONIC CITATION: 2004 FED App. 0293P (6th Cir.) Inc., et al.

File Name: 04a0293p.06

OFFICE OF THE ATTORNEY GENERAL OF OHIO,

Columbus, Ohio, for Appellees. ON BRIEF: Peter D.

UNITED STATES COURT OF APPEALS Enrich, NORTHEASTERN UNIVERSITY SCHOOL OF

FOR THE SIXTH CIRCUIT LAW, Boston, Massachusetts, Terry J. Lodge, Toledo, Ohio,

_________________ for Appellants. Charles A. Rothfeld, MAYER, BROWN,

ROWE & MAW, Washington, D.C., Sharon A. Jennings,

Robert C. Maier, OFFICE OF THE ATTORNEY GENERAL

CHARLOTTE CUNO , et al., X OF OHIO, Columbus, Ohio, Albin Bauer, John T. Landwehr,

Plaintiffs-Appellants, - EASTMAN & SMITH, Toledo, Ohio, Truman A.

- Greenwood, Theodore M. Rowen, SPENGLER

- No. 01-3960 NATHANSON, Toledo, Ohio, Samuel J. Nugent, Barbara E.

v. -

> Herring, OFFICE OF THE CITY OF TOLEDO LAW

, DEPARTMENT, Toledo, Ohio, for Appellees.

DAIMLERCHRYSLER, INC., et -

al., - _________________

Defendants-Appellees. -

- OPINION

N _________________

Appeal from the United States District Court MARTHA CRAIG DAUGHTREY, Circuit Judge. The

for the Northern District of Ohio at Toledo. plaintiffs initiated this litigation in state court, challenging the

No. 00-07247—David A. Katz, District Judge. validity of certain state tax credits and local property tax

abatements that were granted to DaimlerChrysler Corporation

Argued: February 4, 2003 as an inducement to the company to expand its business

operations in Toledo, Ohio. They contend that the tax scheme

Decided and Filed: September 2, 2004 discriminates against interstate commerce by granting

preferential treatment to in-state investment and activity, in

Before: SILER, DAUGHTREY, and COLE, Circuit violation of the Commerce Clause of the United States

Judges. Constitution and the Equal Protection Clause of the Ohio

Constitution. After the defendants removed the action to

_________________ federal court, the district court entered an order dismissing the

complaint under Federal Rules of Civil Procedure 12(b)(1)

COUNSEL and 12(b)(6) for failure to state a claim. Because we conclude

that the investment tax credit runs afoul of the Commerce

ARGUED: Peter D. Enrich, NORTHEASTERN Clause, we can affirm only part of the district court’s

UNIVERSITY SCHOOL OF LAW, Boston, Massachusetts, judgment.

for Appellants. Charles A. Rothfeld, MAYER, BROWN,

ROWE & MAW, Washington, D.C., Sharon A. Jennings,

1

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I. FACTUAL AND PROCEDURAL BACKGROUND of the three following years. See Ohio Rev. Code Ann.

§ 5733.33(D).

In 1998, DaimlerChrysler entered into an agreement with

the City of Toledo to construct a new vehicle-assembly plant The personal property tax exemption is authorized under

near the company’s existing facility in exchange for various §§ 5709.62 and 5709.631; it permits municipalities to offer

tax incentives. DaimlerChrysler estimated that it would specified incentives to an enterprise that “agrees to establish,

invest approximately $1.2 billion in this project, which would expand, renovate, or occupy a facility and hire new

provide the region with several thousand new jobs. In return, employees, or preserve employment opportunities for existing

the City and two local school districts agreed to give employees” in economically depressed areas. Ohio Rev.

DaimlerChrysler a ten-year 100 percent property tax Code Ann. § 5709.62(C)(1). An exemption may be granted

exemption, as well as an investment tax credit of 13.5 percent “for a specified number of years, not to exceed ten, of a

against the state corporate franchise tax for certain qualifying specified portion, up to seventy-five per cent, of the assessed

investments. The total value of the tax incentives was value of tangible personal property first used in business at

estimated to be $280 million. the project site as a result of the agreement.” Ohio Rev. Code

Ann. § 5709.62(C)(1)(a). The exemption may exceed 75

Ohio’s investment tax credit grants a taxpayer a non- percent with consent of the affected school districts. See

refundable credit against the state’s corporate franchise tax if Ohio Rev. Code Ann. § 5709.62(D)(1).

the taxpayer “purchases new manufacturing machinery and

equipment during the qualifying period, provided that the new The district court held that the investment tax credit and the

manufacturing machinery and equipment are installed in property tax exemption do not violate the Commerce Clause

[Ohio].” Ohio Rev. Code Ann. § 5733.33(B)(1). The because, although “an increase in activity in Ohio could

investment tax credit is generally 7.5 percent “of the excess increase the credit and exemption amount” under the two

of the cost of the new manufacturing machinery and statutes, an increase in activity outside the state would not

equipment purchased during the calendar year for use in a decrease the amount of the tax credit or exemption and

county over the county average new manufacturing therefore would not run afoul of the United States Supreme

machinery and equipment investment for that county.” See Court’s ruling in Westinghouse Electric Company v. Tully,

Ohio Rev. Code Ann. § 5733.33(C)(1). The rate increases to 466 U.S. 388, 400-01 (1984). From that decision, the

13.5 percent of the cost of the new investment if it is plaintiffs now appeal.

purchased for use in specific economically depressed areas.

See Ohio Rev. Code Ann. § 5733.33(C)(2), (A)(8)-(13). The II. ANALYSIS

credit may not exceed $1 million unless the taxpayer has

increased its overall ownership of manufacturing equipment We review de novo a district court’s order granting a

in the state during the year for which the credit is claimed. motion to dismiss for failure to state a claim upon which

See Ohio Rev. Code Ann. § 5733.33(B)(2)(a). To the extent relief may be granted. See Inge v. Rock Fin. Corp., 281 F.3d

that the credit exceeds the corporation’s total Ohio franchise 613, 619 (6th Cir. 2002). In considering a motion to dismiss

tax liability in a particular year, the balance of the credit is pursuant to Rule 12(b)(6), all well-pleaded factual allegations

carried forward and can be used to reduce its liability in any of the complaint must be accepted as true and the complaint

construed in the light most favorable to the plaintiffs. Id. It

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is well-settled that dismissal of a complaint is proper “only if it prevent a state from “compet[ing] with other States for a

it is clear that no relief could be granted under any set of facts share of interstate commerce” so long as “no State []

that could be proved consistent with the allegations.” Hishon discriminatorily tax[es] the products manufactured or the

v. King & Spalding, 467 U.S. 69, 73 (1984)(citing Conley v business operations performed in any other State.” Boston

Gibson, 355 U.S. 41, 45-46 (1957)). Stock Exch. v. State Tax Comm’n, 429 U.S. 318, 336-37

(1977); see also Bacchus Imports, Ltd. v. Dias, 468 U.S. 263,

On appeal, the plaintiffs’ primary contention is that the 272 (1984) (the federal Commerce Clause “limits the manner

Ohio statutes authorizing the investment tax credit and in which States may legitimately compete for interstate

personal property tax exemption violate the Commerce trade”). Rather, the parties dispute whether Ohio’s method

Clause of the United States Constitution. Secondarily, the for encouraging new economic investment – conferring

plaintiffs claim that the tax incentives violate Ohio’s Equal investment tax incentives and property tax exemptions –

Protection Clause. discriminates against interstate commerce.

A. Commerce Clause Claim The United States Supreme Court has never precisely

delineated the scope of the doctrine that bars discriminatory

The United States Constitution expressly authorizes taxes. The Court has made clear, however, that a tax statute’s

Congress to “regulate Commerce with foreign Nations, and “constitutionality does not depend upon whether one focuses

among the several States,” U.S. Const. art. I, § 8, cl. 3, and upon the benefitted or the burdened party.” Bacchus Imports,

the “negative” or “dormant” aspect of the Commerce Clause 468 U.S. at 273. The fact that a statute “discriminates against

implicitly limits the State’s right to tax interstate commerce. business carried on outside the State by disallowing a tax

A tax provision satisfies the requirements of the Commerce credit rather than by imposing a higher tax” is therefore

Clause if (1) the activity taxed has a substantial nexus with legally irrelevant. Westinghouse Elec. Corp. v. Tully, 466

the taxing State; (2) the tax is fairly apportioned to reflect the U.S. 388, 404 (1984).

degree of activity that occurs within the State; (3) the tax does

not discriminate against interstate commerce; and (4) the tax In general, a challenged credit or exemption will fail

is fairly related to benefits provided by the state. See Commerce Clause scrutiny if it discriminates on its face or if,

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 on the basis of “a sensitive, case-by-case analysis of purposes

(1977). and effects,” the provision “will in its practical operation

work discrimination against interstate commerce,” West Lynn

The parties do not dispute that the tax provisions at issue Creamery v. Healy, 512 U.S. 186, 201 (1994)(citations

have a sufficient nexus with the state, are fairly apportioned, omitted), by “providing a direct commercial advantage to

and are related to benefits provided by the state. Nor do the local business.” Bacchus Imports, 468 U.S. at 268 (citations

parties dispute that it is legitimate for Ohio to structure its tax omitted). “‘[D]iscrimination’ simply means differential

system to encourage new intrastate economic activity. treatment of in-state and out-of-state economic interests that

Indeed, the United States Supreme Court has indicated that benefits the former and burdens the latter.” Oregon Waste

the Commerce Clause “does not prevent the States from Sys., Inc. v. Dep’t. of Envtl. Quality, 511 U.S. 93, 99 (1994).

structuring their tax systems to encourage the growth and A state tax provision that discriminates against interstate

development of intrastate commerce and industry,” nor does commerce is invalid unless “it advances a legitimate local

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purpose that cannot be adequately served by reasonable amendment created a 50 percent reduction in the tax rate on

nondiscriminatory alternatives.” Id. at 101 (quoting New transfers by nonresidents and limited liability on transfers of

Energy Co. of Ind. v. Limbach, 486 U.S. 269, 278 (1988)). large blocks of shares as long as the sales were made in New

York. See id. at 324. As a result, the amendment caused

1. Investment Tax Credit transactions involving out-of-state sales to be taxed more

heavily than transactions involving in-state sales. See id. at

Although the investment tax credit at issue here is equally 330 - 31. The Court held that the reduction offended the

available to in-state and out-of-state businesses, the plaintiffs Commerce Clause’s anti-discrimination principle by

nevertheless maintain that it discriminates against interstate converting a tax that was previously “neutral as to in-state and

economic activity by coercing businesses already subject to out-of-state sales” into one that which would induce a seller

the Ohio franchise tax to expand locally rather than out-of- to trade through a New York broker in order to reduce its tax

state. Specifically, any corporation currently doing business liability. See id. at 330-32. In doing so, New York

in Ohio, and therefore paying the state’s corporate franchise effectively “foreclose[d] tax-neutral decisions” and “creat[ed]

tax in Ohio, can reduce its existing tax liability by locating both an advantage for the exchanges in New York and a

significant new machinery and equipment within the state, but discriminatory burden on commerce to its sister States.” Id.

it will receive no such reduction in tax liability if it locates a at 331. The diversion of interstate commerce from the most

comparable plant and equipment elsewhere. Moreover, as economically efficient channels that resulted from New

between two businesses, otherwise similarly situated and each York’s use of “its power to tax an in-state operation as a

subject to Ohio taxation, the business that chooses to expand means of ‘requiring [other] business operations to be

its local presence will enjoy a reduced tax burden, based performed in the home state,’” id. at 336 (quoting Pike v.

directly on its new in-state investment, while a competitor Bruce Church, Inc., 397 U.S. 137, 145 (1970)), was seen by

that invests out-of-state will face a comparatively higher tax the Court as “wholly inconsistent with the free trade purpose

burden because it will be ineligible for any credit against its of the Commerce Clause.”

Ohio tax.

Shortly thereafter, in Maryland v. Louisiana, 451 U.S. 725

The plaintiffs’ argument principally relies on the Supreme (1981), the Supreme Court reviewed a Louisiana statute that

Court’s own explanation of its Commerce Clause imposed a first-use tax on natural gas extracted from the

jurisprudence in cases invalidating tax schemes that continental shelf in an amount equivalent to the severance tax

encourage the development of local industry by imposing imposed on natural gas extracted in Louisiana. See id. at 731.

greater burdens on economic activity taking place outside the Taxpayers subject to the first-use tax were entitled to a direct

state. In Boston Stock Exchange, for example, the Supreme tax credit on any Louisiana Severance Tax owed in

Court held unconstitutional amendments to New York’s connection with the extraction of natural resources within the

securities transfer tax that aimed to offset the competitive state. See id. at 732. Most Louisiana consumers of offshore

advantage that the transfer tax otherwise created for out-of- gas were eligible for tax credits and exemptions, but the tax

state exchanges that did not tax transfers. See Boston Stock applied in full to offshore gas moving through and out of

Exchange, 429 U.S. at 323 - 24. Prior to the amendment, state. See id. at 733. Noting that the state severance tax

New York uniformly taxed in-state transfers of securities credit “favor[ed] those who both own [offshore] gas and

without regard to the place of sale. See id. at 322. The engage in Louisiana production” and that the “obvious

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economic effect of this Severance Tax Credit [was] to of Ohio’s “power to tax an in-state operation as a means of

encourage natural gas owners involved in the production of ‘requiring [other] business operations to be performed in the

[offshore] gas to invest in mineral exploration and home State.’” Boston Stock Exch., 429 U.S. at 336 (quoting

development within Louisiana rather than to invest in further Bruce Church, 397 U.S. at 145). Thus, they contend that like

[offshore] development or in production in other States,” the the tax credit in Maryland v. Louisiana, the economic effect

Court held that the statute “unquestionably discriminate[d] of the Ohio investment tax credit is to encourage further

against interstate commerce in favor of local interests.” Id. at investment in-state at the expense of development in other

756 - 57. states and that the result is to hinder free trade among the

states. Cf. Boston Stock Exch., 468 U.S. at 336.

In Westinghouse Electric Corp. v. Tully, 466 U.S. 388

(1984), the Supreme Court invalidated a New York franchise The defendants maintain that the Supreme Court’s opinions

tax that gave corporations an income tax credit based on the should be read narrowly to hold that tax incentives, like the

portion of their exports shipped from New York. Under the Ohio tax credit, are permissible as long as they do not

law, income from a subsidiary engaged exclusively in exports penalize out-of-state economic activity, citing Philip M.

was to be combined with the income of its parent company Tatarowicz & Rebecca F. Mims-Velarde, An Analytical

for state tax purposes. See id. at 393. In an effort to provide Approach to State Tax Discrimination Under the Commerce

an incentive to increase export activity in New York, the Clause, 39 Vand. L. Rev. 879, 929 (1986) (elaborating upon

parent company was given a partially offsetting credit against and applying this distinction to the Court’s precedents). In

income tax attributable to the subsidiary’s income generated their view, the Commerce Clause is primarily concerned with

from New York exports. See id. Because the credit was preventing economic protectionism – that is, regulatory

based on the ratio of the subsidiary’s New York exports to its measures designed to benefit local interests by burdening out-

income from all export shipments, a company’s overall New of-state commerce. According to their theory, the only tax

York tax liability would decrease as exports from New York credits and exemptions that would run afoul of the Commerce

increased relative to exports from other states. Conversely, a Clause fall into two categories: those that function like a tariff

company’s New York tax liability increased when exports by placing a higher tax upon out-of-state business or products

from New York decreased relative to exports from other and those that penalize out-of-state economic activity by

states. See id. at 401. The Court found that the tax scheme relying on both the taxpayer’s in-state and out-of-state

“penalize[d] increases in the [export] shipping activities in activities to determine the taxpayer’s effective tax rate.

other states,” id. at 401, and that it was therefore a

discriminatory tax that advantaged New York firms “by Although it is arguably possible to fit certain of the

placing ‘a discriminatory burden on commerce to its sister Supreme Court’s cases into this framework, it is clear that the

States.’” Id. at 406 (quoting Boston Stock Exchange, 429 U.S. Court itself has not adopted this approach in analyzing

at 331). dormant Commerce Clause cases, undoubtedly because it

rests on the distinction between laws that benefit in-state

Analogizing to the provisions considered in Boston Stock activity and laws that burden out-of-state activity. Such a

Exchange, Maryland v. Louisiana, and Westinghouse, the distinction is tenuous in light of the Court’s acknowledgment

plaintiffs argue that the investment tax credit at issue here that “[v]irtually every discriminatory statute allocates benefits

encourages the development of local business through the use or burdens unequally; each can be viewed as conferring a

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benefit on one party and a detriment on the other, in either an 2. Personal Property Tax Exemption

absolute or relative sense.” Bacchus Imports, 468 U.S. at

273. Indeed, economically speaking, the effect of a tax The plaintiffs maintain that the discriminatory characteristic

benefit or burden is the same. Moreover, the Court’s of the City’s personal property tax exemption rests not on the

command to examine the practical effect of challenged tax fact that only in-state property is eligible for exemption, but

schemes suggests that “constitutionality [should] not depend rather on the conditions that Ohio places on eligibility –

upon whether one focuses upon the benefitted or the burdened conditions that require beneficiaries of the exemptions to

party.” Id.; see also Westinghouse, 466 U.S. at 404 (“Nor is agree to maintain a specified level of employment and

it relevant that New York discriminates against business investment in the state. The effect, they argue, is to subject

carried on outside the State by disallowing a tax credit rather two similarly situated owners of Ohio personal property to

than by imposing a higher tax.”). differential tax rates. A taxpayer who agrees to focus his

employment or investment in Ohio receives preferential

Although the defendants liken the investment tax credit to treatment in the form of a tax break, while a taxpayer who

a direct subsidy, which would no doubt have the same prefers to preserve the freedom to hire or invest elsewhere

economic effect, the Court has intimated that attempts to does not.

create location incentives through the state’s power to tax are

to be treated differently from direct subsidies despite their Although conditions imposed on property tax exemptions

similarity in terms of end-result economic impact. The may independently violate the Commerce Clause, conditional

majority in New Energy noted in dicta that subsidies do not exemptions raise no constitutional issues when the conditions

“ordinarily run afoul of [the Commerce Clause]” because they for obtaining the favorable tax treatment are related to the use

are not generally “connect[ed] with the State’s regulation of or location of the property itself. Stated differently, an

interstate commerce.” New Energy Co., 486 U.S. at 278; see exemption may be discriminatory if it requires the beneficiary

also West Lynn Creamery, 512 U.S. at 199 n.15 (“We have to engage in another form of business in order to receive the

never squarely confronted the constitutionality of subsidies, benefit or is limited to businesses with a specified economic

and we need not do so now. We have, however, noted that presence. Cf. Maryland, 451 U.S. at 756-57 (finding

‘[d]irect subsidization of domestic industry does not unconstitutional a tax benefit that encouraged natural gas

ordinarily run afoul’ of the negative Commerce owners to invest in other forms of mineral exploration and

Clause.”(quoting New Energy Co., 486 U.S. at 278)). Thus, development within Louisiana rather than investing further in

the distinction between a subsidy and a tax credit, in the natural gas development outside the state). However, if the

constitutional sense, results from the fact that the tax credit conditions imposed on the exemption do not discriminate

involves state regulation of interstate commerce through its based on an independent form of commerce, they are

power to tax. permissible.

In short, while we may be sympathetic to efforts by the City Contrary to the plaintiffs’ assertions, the conditions

of Toledo to attract industry into its economically depressed imposed on the receipt of the Ohio property tax exemption are

areas, we conclude that Ohio’s investment tax credit cannot minor collateral requirements and are directly linked to the

be upheld under the Commerce Clause of the United States use of the exempted personal property. The authorizing

Constitution. statute requires only an investment in new or existing

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property within an enterprise zone and maintenance of conditional character of the Ohio property tax exemption does

employees. See Ohio Rev. Code Ann. § 5709.62(C)(1). The not resemble characteristics of property tax exemptions found

statute does not impose specific monetary requirements, unconstitutional by previous courts.

require the creation of new jobs, or encourage a beneficiary to

engage in an additional form of commerce independent of the Finally, the plaintiffs’ argument regarding the effect of the

newly acquired property. 1 As a consequence, the conditions exemption overlooks fundamental differences between tax

placed on eligibility for the exemption do not independently credits and exemptions. Unlike an investment tax credit that

burden interstate commerce. reduces pre-existing income tax liability, the personal

property exemption does not reduce any existing property tax

The cases on which the plaintiffs rely are inapplicable here, liability. The exemption merely allows a taxpayer to avoid

because they fail to address the question of whether tax liability for new personal property put into first use in

conditions attached to the receipt of an exemption violate the conjunction with a qualified new investment. Thus, a

anti-discrimination principle where the conditions themselves taxpayer’s failure to locate new investments within Ohio

do not impose independent burdens upon commerce. In simply means that the taxpayer is not subject to the state’s

Camps Newfound/Owatonna,Inc. v. Town of Harrison, 520 property tax at all, and any discriminatory treatment between

U.S. 564 (1997), the Supreme Court reviewed a property tax a company that invests in Ohio and one that invests out-of-

exemption for charitable organizations that excluded state cannot be attributed the Ohio tax regime or its failure to

organizations operated principally for the benefits of reduce current property taxes. Additionally, the personal

nonresidents and found the exemption unconstitutionally property tax exemption is internally consistent because, if

discriminatory because the effect of the statute was to universally applied, the new property would escape tax

“distinguish[] between entities that serve a principally liability irrespective of location. Every new investment, no

interstate clientele and those that primarily serve an intrastate matter where undertaken, would be exempt from a tax. Thus,

market, singling out [entities] that serve mostly in-staters for businesses that desire to expand are neither discriminated

beneficial tax treatment, and penalizing those camps that do against nor pressured into investing in Ohio. Accordingly, we

a principally interstate business.” Id. at 576. Similarly, the hold that the Ohio personal property tax exemption does not

Fifth Circuit in Pelican Chapter, Associated Builders & violate the dormant Commerce Clause.

Contractors, Inc. v. Edwards, 128 F.3d 910 (5th Cir. 1997),

invalidated a tax exemption because it required beneficiaries B. State Equal Protection Claim

to give a preference to in-state manufacturers, suppliers, and

laborers. The Ohio provision at issue contains no restriction The plaintiffs also challenged the investment tax credit and

on the individuals employed or served. Therefore, the property tax exemption under the Equal Protection Clause of

the Ohio Constitution, contending that the authorizing statutes

“reflect a bias in favor of entrenched local interests that

results in a discriminatory allocation of tax burdens and

1

Plaintiffs’ assertion that the exemption, once received, coerces benefits.” The district court found no equal protection

business into continual re-investment in Ohio in order to preserve the tax violation based on a determination that both provisions were

exemption is not persuasive. The exemption is project-specific and, rationally related to a legitimate state interest in revitalizing

therefore, a business do es not lose its existing ex emp tion by d eciding to

make its next investment elsewhere.

economically troubled areas.

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The Equal Protection Clauses of the Ohio and United States facilitating economic development, creating or preserving

Constitutions impose identical limitations on government jobs, and improving the economic welfare of citizens);

classification. See Am. Ass’n of Univ. Professors v. Cent. Nordlinger v. Hahn, 505 U.S. 1, 12 (1992) (“[T]he State has

State Univ., 717 N.E.2d 286, 291 (Ohio 1999) (rejecting an a legitimate interest in local neighborhood preservation,

argument that the state equal protection clause imposes continuity, and stability.”) (citing Village of Euclid v. Ambler

stricter analysis than the federal equal protection clause). Realty Co., 272 U.S. 365 (1926)). The benefits conferred by

Heightened review is triggered only if the classification the investment tax credit and property tax exemption are

“jeopardizes exercise of a fundamental right or categorizes on rationally related to this interest, given that their objective is

the basis of an inherently suspect characteristic.” MCI to encourage businesses to relocate or expand existing

Telecommunications Corp. v. Limbach, 625 N.E.2d 597, 600 facilities in central cities or areas that have high

(Ohio 1994). Because the tax credit and the exemption unemployment rates, significant low-income populations, or

provision classify on the basis of locality, a classification that deteriorating buildings.

is not inherently suspect, the tax incentives need only satisfy

rational basis review. The plaintiffs argue nonetheless that granting tax incentives

to a new domestic business but not nonresident businesses is

Under rational basis review, a classification “must be not a legitimate purpose under Ohio’s Equal Protection

upheld against equal protection challenge if there is any Clause. However, the cases cited in support of this argument

reasonably conceivable state of facts that could provide a lend little or no weight to the plaintiffs’ position. In

rational basis for the classification.” Cent. State Univ., 717 Metropolitan Life Insurance Co. v. Ward, 470 U.S. 869, 880

N.E.2d at 290 (quoting FCC v. Beach Communications, Inc., (1985), for example, the Court invalidated an Alabama statute

508 U.S. 307, 313 (1993)). A rational relationship exists so that imposed a higher tax rate on insurance companies that

long as “the relationship of the classification to its goal is not were incorporated or maintained their principal place of

so attenuated as to render the distinction arbitrary or business outside of Alabama, on the ground that the

irrational.” Pica Corp., Inc. v. Tracy, 646 N.E.2d 206, 209 difference in treatment failed to advance a legitimate state

(Ohio Ct. App. 1994). The state, moreover, has no duty to interest. In so ruling, the Court held “that promotion of

produce legislative facts to sustain the rationality of a domestic business within a State, by discriminating against

statutory classification. Cent. State Univ., 717 N.E.2d at 290. foreign corporations that wish to compete by doing business

A statute is presumed constitutional, and the “burden is on the there, is not a legitimate state purpose.” Id. Thus,

one attacking the legislative arrangement to negative every Metropolitan Life holds that a state may not impose a

conceivable basis which might support it.” Id. (quoting Heller discriminatory tax in order to promote domestic industry

v. Doe, 509 U.S. 312, 320 (1993)(citation omitted)). solely based on nonresident status. The tax benefits under the

Ohio statutes, however, are equally available to domestic and

The courts have recognized a state’s legitimate interest in foreign corporations and classify corporations on the basis of

revitalizing economically troubled areas in order to eliminate new investment in economically depressed areas.

problems frequently associated with urban blight. See, e.g.,

Desenco, Inc. v. Akron, 706 N.E.2d 323, 332 (Ohio 1999) Likewise inapplicable are the cited opinions in Allegheny

(statutes that created economic development districts were Pittsburgh Coal Co. v. County Commission of Webster

rationally related to the state’s legitimate interest in County, 488 U.S. 336 (1989), and Hooper v. Bernalillo

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County Assessor, 472 U.S. 612 (1985). In both cases, the § 5733.33, and we enjoin its enforcement. We AFFIRM the

Supreme Court struck down a county property tax assessment remaining portions of the district court’s judgment.

scheme that could not reasonably support the state’s asserted

legislative purpose. In Allegheny, the county tax assessor

valued property based on the last sale price regardless of

when it was last sold, providing only a modest increase in

assessed value for properties that had not been recently

transferred. See id. at 343. This practice resulted in gross

disparities in the assessed value of comparable properties. The

Court acknowledged that a “[s]tate may divide different kinds

of property into classes and assign to each class a different tax

burden so long as those divisions and burdens are

reasonable,” but it found no rational basis for the county’s tax

scheme whose asserted purpose was to “assess[ ] properties

at true current value.” Id. at 343-44. Similarly, the Court

held in Hooper that a tax exemption classifying military

veterans based solely on their period of residency within the

state could not be rationalized by the state’s interest in

encouraging veterans to relocate to the state or in repaying

veterans for their military service. 472 U.S. at 620-22.

By contrast, the classification in this case is clearly

supported by facts that give rise to a legitimate state interest.

In the equal protection context, a tax statute withstands

constitutional scrutiny as long as the burden it imposes is

found to be rationally related to that purpose. The purpose of

the Ohio statutes – to encourage industrial development and

economic stimulation of the state’s economically troubled

areas – clearly has a reasonable nexus to the tax provisions.

Hence, we conclude that the plaintiffs have failed to

demonstrate that the challenged tax incentives violate the

Equal Protection Clause of the Ohio Constitution.

III. CONCLUSION

For the reasons set out above, we REVERSE that portion

of the district court’s judgment upholding as constitutional

the investment tax credit provision of Ohio Rev. Code Ann.