Amicus Curiae Brief — DaimlerChrysler Corp. v. Cuno

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No. 04-1704 & No. 04-1724

Jn the Supreme Court of the Gnited

DAIMLERCHRYSLER CORPORATION,

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of"; CEOFT. "we SCLER! ae

Petitioner,

v.

CHARLOTTE CUNO, ET AL.,

Respondents.

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WILLIAM W. WILKINS, ET AL.,

Petitioners,

Vv.

CHARLOTTE CUNO, ET AL.,

Respondents.

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On Petition for Writ of Certiorari to the United States

Court of Appeals for the Sixth Circuit

+

Brief Of Amici Curiae Louisville Area Chamber of

Commerce, Inc., Greater Cincinnati Chamber of Commerce,

Nashville Area Chamber of Commerce, Commerce

Lexington, Inc., Scott County United, Inc., Northern

Kentucky Chamber of Commerce & Tri-County Economic

Development Corp., Knoxville Area Chamber Partnership,

Chattanooga Area Chamber of Commerce, Memphis

Regional Chamber of Commerce, Johnson City/

Jonesborough/Washington County Chamber Of Commerce

& Economic Development Board, & Kingsport Area

Chamber of Commerce In Support Of Ohio Petitioners’ and

DaimlerChrysler Corp.’s Petitions For Writ Of Certiorari

+

Jeffrey R. Teeters (counsel of record)

Robert D. Shank

FROST BROWN TODD LLC

201 E. Sth St., 2200 PNC Center

Cincinnati, Ohio 45202

(513) 651-6800

TABLE OF CONTENTS

Page

5 Pe er CN siciiencisenicrsintnensetssenensstiniinemenes i

Ts Oe FORT CE iitticccciseindesictesincstamstinlitcdisenias 1

INTEREST OF AMIC/ CURIAE IN THIS CASE............... |

STATEMENT OF THE CASE. ........cccorsvessscscrscessecesesssscesooes 5

SUMMARY OF ARGUMENT. ........000000-cseccscocsccsscsessesesess 6

PETITES acctsiscctichsitinnatiiapabiicinnniitsiidusennes a WNDU ee we Toe 7

1. The purpose of Ohio’s tax credit is to

encourage domestic industry ...................... 8

2. The Sixth Circuit Court of Appeals decided an

important Commerce Clause question in a

way that conflicts with the Michigan Supreme

Court and significantly departs from this

Court’s long-standing precedent ............... 14

3. The tax incentives at issue do not

interfere with free trade

I ee intiediibiicnsiicionimuisiisiadineds 16

ST cities ciate esitinmschiciansdhcbiaiciiassiiniaiien 17

TABLE OF AUTHORITIES

CASES PAGE(S)

American Trucking Ass'n, Inc. v. Scheiner,

SI ph A CUED vin cialicceictaepicteiieicnasiirineninntnimneiie 7

Armco, Inc. v. Hardesty, 467 U.S. 638 (1984).... 6, 7, 10, 16

Bacchus Imps. v. Dias, 468 U.S. 263 (1984) ........... 5, 6, 10

Boston Stock Exch. v. Tax Comm'n,

Ts TOD cuneiititidececstastdtpnihigeisicnnmeines 5, 6, 8, 10

Caterpillar, Inc. v. Dept. of Treasury, 440 Mich.

400, 488 N.W.2d 182 (1992) .......ccccecsccsesesseeeee 5, 6, 7;8, 10, 15

Complete Auto Transit, Inc. v. Brady,

Ra ED ae oe 14

Container Corp. v. Franchise Tax Bd.,

LG TI sistent nd ciielilinictidesconeiieamenigpaedonses 15

Cuno v. Daimler Chrysler, Inc.,

386 F.3d 738 (6th Cir. 2004) 200... 11,15

Department of Revenue v. Association of Wash.

~ Stevedoring Cos., GED CRE. FOOT OD ssccnveceveiccstsions 16

Hughes v Alexandria Scrap Corp.,

PE OUI xcesicnitisdstacszidaciadageidiotitnaciinscnimmmaih 1]

Kelo v. City of New.London,\25 S.Ct. 2655, 2005 U.S.

UU TI aa a a itil 8

New Energy Co. v. Limbach, 486 U.S. 269 (1988)........... 11

Nordlinger v. Hahn, 505 U.S. 1 (1992) co..ccceccccecessseeneeeeee 8

Trinova Corp. v. Michigan Dept. of Treasury,

EE Ac STOPES ervtinniiienitiiesoennibenciibiniainny 6, 8, 14

Westinghouse Elec. Corp. v. Tully,

466 U.S. 388 (1984) sesenannnnveseccenssnnonssscnssnnsnsscssnnsanessses 6

West Lynn Creamery, Inc. v. Healy,

FUE i SUI sti sstiinnincosepennsibecensanenansiiait 10, 11

STATUTES AND RULES

Federal Rules of Civil Procedure, Rule as isieccunintsecs’ 13

Ohio Revised Code § $733.33 ............cccccccscssssssocssescrecseees 17

OTHER AUTHORITIES ks

Andrea Lee Rimer, “Environmental Liability and the

Brownfields Phenomenon: An Analysis of Federal

Options for Redevelopment,” 10 TUL. ENVTL. L.J. 63,

RPI Scio dishes iitinsiad miniectpaahicaohovdigeniiietibedtveresnaiina 9

Brian Thomas Lang, “Note: Ohio’s Voluntary Action

Program: Solving Ohio’s Toxic Waste Woes?”

60 On10 St. L.J. 285, 286 (1999) occ cee ceeteees 9

Deming, QUALITY, PRODUCTIVITY, AND

COMPETITIVE POSITION (1982) .........0....ccccccceceeseeeeeees 11

Economic Development Today: A Report to the Profession

(American Economic Development Council, 1984).... 11

Elizabeth Weissman & Catherine G. Ware, “A Holistic

Approach to Business Relocation and Expansions,”

J. MULTISTATE TAX'N & INCENTIVES, 1999 WL

FERED Me GON: BODOD . cacesnksviniiineetipssardsenenstenate i!

Kathleen A. Norat & Eileen M. Lomorielo, “Clawbacks: -

A Help or A Hindrance in Negotiating Incentive

Benefits?” J. MULTISTATE TAX’N & INCENTIVES,

2004 WL 335216 at *27 (Feb. 2004) ...0.........cee eee 11

Peter D. Enrich, “Saving the States From Themselves:

Commerce Clause Constraints on State Tax

Incentives for Business,” 110 HARV. L. REV. 377

RAISES ER Mb Unter Pate ie et aus ER 16

Regional Multipliers, U.S. Dept. of Commerce,

eis FGF AIO OD: inecessennitistieliiansentchesntibiinnen 11,12

Scott Sherman, “Government Tax and Financial

Incentives in Brownfields Redevelopment: Inside the

Developer’s Pro Forma,” || N.Y.U. ENVTL. L.J.

ET, DOD GOED ditecscisnsenintieritapvniieiiiitiinninimaians 9,13

iV

Brief of Amici Curiae Louisville Area Chamber Of

Commerce, Inc., Greater Cincinnati Chamber of

Commerce, Nashville Area Chamber of Commerce,

Commerce Lexington, Inc., Scott County United, Inc.,

Northern Kentucky Chamber of Commerce & Tri-

County Economic Development Corporation, Knoxville

Area Chamber Partnership, Chattanooga Area Chamber

of Commerce, Memphis Regional Chamber of

Commerce, Johnson City/Jonesborough/Washington

County Chamber of Commerce and Economic

Development Board, and Kingsport Area Chamber of

Commerce In Support of Ohio Petitioners’ and

DaimlerChrysler Corporation’s Petitions for Writ of

Certiorari

-«

INTEREST OF AMICI CURIAE IN THIS CASE’

identification of the Amici Curiae

Louisville Area Chamber of Commerce, Inc. (d/b/a

Greater Louisville Inc.), Greater Cincinnati Chamber of

Commerce (d/b/a Cincinnati USA Regional Chamber),

Nashville Area Chamber of Commerce, Commerce

Lexington, Inc., Scott County United, Inc., Northern

Kentucky Chamber of Commerce and Tri-County Economic

Development Corporation, Knoxville Area Chamber

Partnership, Chattanooga Area Chamber of Commerce,

Memphis Regional Chamber of Commerce, Johnson

Pursuant to Supreme Court Rule 37.6, the Amici Curiae Urban

Chambers state that no counsel for any party authored this brief in whole

or in part, nor did any person or entity, other than the Amici Curiae, their

members, and their counsel, make a monetary contribution to the

preparation or submission of this brief. Counsel of record for all

Petitioners and Respondents have consented to the filing of this brief.

City/Jonesborough/Washington County Chamber _ of

Commerce and Economic Development Board, and

Kingsport Area Chamber of Commerce (collectively, the

“Urban Chambers”) represent thousands of—businesses in

their metropolitan areas. The Urban Chambers and their

members are engaged in business in Ohio, Kentucky, and

Tennessee, and thus have a particular interest in the ultimate

resolution of the constitutionality of Ohio’s investment tax

credit. Ohio’s investment tax credit in no way violates the

Commerce Clause, and, accordingly, the Sixth Circuit’s

decision should be reversed.

Greater Louisville Inc. is the metro chamber of

commerce and economic development agency representing

approximately 2,400 businesses and organizations in the

Louisville, Kentucky — southern Indiana metropolitan area.

Cincinnati USA Regional Chamber ts the nation's

fifth largest chamber, representing the interests of more than

6,000 member businesses with approximately 380,000

employees in 15 counties in southwestern Ohio, northern

Kentucky, and southeastern Indiana.

~The Nashville Area Chamber of Commerce

represents approximately 3,300 member businesses and

249,000 employees in a 19-county region in middle

Tennessee.

Commerce Lexington, Inc. promotes economic

development, job creation, and overall growth in Lexington,

Kentucky and its neighboring communities. It includes over

1,800 member companies and over 3,700 business

professionals.

Scott County United Inc. has 527 active members in

Georgetown, Kentucky and surrounding areas, promoting

and coordinating local economic development.

2

The Northern Kentucky Chamber of Commerce

seeks to expand and develop business for a steadily rising tri-

state region with a workforce of over | million in northern

Kentucky and Cincinnati. It represents 1,900 business

members consisting of regional, national, and international

companies. Tri-County Economic Development Corporation

is the primary economic development marketing agency and

the primary entity for the retention and expansion of existing

industries in Boone, Kenton, and Campbell Counties in

northern Kentucky.

The Knoxville Area Chamber Partnership is a

private, nonprofit, membership-driven organization focusing

on economic development. Comprised of more than 1,700

member businesses, its primary focus is to drive regional

economic prosperity. As the leading economic development

agency for both the City of Knoxville and Knox County,

Tennessee, the chamber focuses on generating business

opportunities and creating an environment for networking

and sustained prosperity.

The Chattanooga Area Chamber of Commerce brings

Chattanooga, Tennessee-area businesses together in support

of economic growth and initiatives that support the

community. The Chattanooga Area Chamber of Commerce

has more than 1,700 members, ranging from single employee

Operations to companies with more than 2,000 employees. It

provides a range of services that support the expansion of

existing industry, entrepreneurial activity, and business

recruitment.

The Memphis Regional Chamber of Commerce ts the

leading economic development organization for the three-

state, eight-county Memphis metropolitan area. The nearly

2,400 companies that comprise its membership range from

large international companies having over 30,000 local

employees to one-person businesses.

3

The Johnson City/Jonesborough/Washington County

Chamber of Commerce and Economic Development Board

provide services to the business community in the State of

Tennessee’s fourth largest metropolitan area. With nearly

900 members, its purpose is to promote economic and

community development. The Board serves as an

industrial/business recruiter, with a principal mission of

promoting economic development.

The Kingsport Area Chamber of Commerce is a

private, non-profit business organization comprised of nearly

1,000 business members in northeast Tennessee. Its goal is

to utilize its resources to focus efforts on enhancing a strong

and viable business environment for the Kingsport,

Tennessee area.

The Amici Curiae’s Interest

If the lower court’s ruling is permitted to stand, Ohio,

Kentucky, Tennessee, Michigan, and these Amici could be

outsiders deprived of the chance to compete freely in

economic development activities with the other 46 States, as

well as internationally.

The Urban Chambers are on the front lines of

economic development activities for a global economy that

Starts, lives, and dies on the local level. Accordingly, the

Urban Chambers have a keen interest in the outcome of this

case because they are constantly involved in economic

development, job creation, and brownfield revitalization in

their respective states, regions, and metropolitan areas.

They can explain the profound adverse effects on local

communities that the Sixth Circuit’s incorrect interpretation

of the Commerce Clause will have, absent a grant of

certiorari and reversal.

The Sixth Circuit’s opinion undermines the Urban

Chambers’ ability to engage in the economic competition

that is the underlying goal of the Commerce Clause. See

Bacchus Imps. v. Dias, 468 U.S. 263, 272 (1984)

(“[C]ompetition among the States for a share of interstate

commerce is a central element of our free-trade policy.”).

Until this Sixth Circuit opinion, all states were “free to

‘structur[e] their tax systems to encourage the growth and

development of intrastate commerce and _ industry.’”

Caterpillar, inc. v. Dept. of Treasury, 440 Mich. 400, 424,

488 N.W.2d 182, 192 (1992) (quoting Boston Stock Exch. v.

Tax Comm'n, 429 U.S. 318, 336-37 (1977)). Even the

Respondents agree that it is “vital for this Court to step in to

resolve the conflict among the circuits, so that businesses

will be able to make well-informed decisions about where to

locate new facilities, and so that state and local governments

will be able to design and offer incentive packages that

comport with constitutional requirements.” Sce Cuno, ef

al.’s Petition for Writ of Certiorari, Case No. 04-1407, at 19.

STATEMENT OF THE CASE

The Sixth Circuit Court of Appeals overturned

Ohio’s statutory investment tax credit program, which was

designed to encourage all manufacturers, both in and outside

of Ohio, to make capital and other job creating investments

in Ohio. In exchange for any manufacturer making a

qualifying investment in Ohio, the program provided a credit

against the manufacturer's Ohio franchise tax liability, which

otherwise would necessarily increase due to the new capital

investment. The program applies equally to all

manufacturers regardless of their state of incorporation,

principal place of business, or location of other facilities or

operations. Moreover, the investment tax credit program

placed no burden upon manufacturers that chose to invest

their resources in other locations outside of Ohio.

Nevertheless, the Sixth Circuit accepted the plaintiffs-

5

respondents’ admittedly novel theory to find this tax

program in violation of the Commerce Clause.

SUMMARY OF ARGUMENT

This case presents a significant issue for cities,

businesses, and workers nationwide, because the Sixth

Circuit’s- ruling creates a conflict between that court, the

Michigan Supreme Court, and this Court’s precedent. That

conflict strikes at the heart of States’ abilities to employ

common tax incentive programs as means of encouraging

economic development and job creation. As it stands now,

the Sixth Circuit’s ruling creates, rather than remedies, an

undue burden on interstate commerce.

First, states are constitutionally permitted to enact

laws that have the “effect of encouraging domestic industry.”

Bacchus, 468 U.S. at 271-72. Certainly, “a discriminatory

effect does not result from fair encouragement of in-state

business....” Caterpillar, 488 N.W. 2d at 193 (citing Armco,

Inc. v. Hardesty, 467 U.S. 638, 645-46 (1984); Boston Stock

Exchange, 429 U.S. at 336-37). As supported by a wide

range of data regarding new investments and thousands of

newly created jobs, the Ohio investment tax credit has

neither an impermissible purpose nor an impermissible

effect.

Second, the Sixth Circuit’s decision is a departure

from prior Supreme Court jurisprudence interpreting the

dormant Commerce Clause. See Trinova Corp. v. Michigan

Dept. of Treasury, 498 U.S. 358, 385-86 (1991); Bacchus,

468 U.S. at 272; Westinghouse Elec. Corp. v. Tully, 466 U.S.

388, 407 n. 12 (1984). This Court has consistently ruled that

States may structure their tax codes and provide economic

development incentives as mechanisms for competition

amongst themselves. The Sixth Circuit’s ruling abandoned

that precedent, and wholly failed to identify any grounds for

6

the adoption of plaintiffs-respondents’ novel application of

the Commerce Clause. In addition, the Sixth Circuit’s ruling

creates a direct conflict with the Michigan Supreme Court’s

decision in Caferpillar. \n Caterpillar, the Michigan

Supreme Court addressed a similar dormant Commerce

Clause attack on a state investment tax credit, and found that

tax credit to comply with this Court’s rulings and guidance.

Therefore, inconsistent rulings place States within the Sixth

Circuit on an uncertain foundation and at a disadvantage

relative to the remaining 46 States that remain free to employ

such long-accepted economic development tools.

Third, this Court has previously stated that a state tax

program must have internal consistency, i.e., it “must be of a

kind that, ‘if applied by every jurisdiction, there would be no

impermissible interference with free trade.’” American

Trucking Ass'n, Inc. v. Scheiner, 482 U.S. 266, 284 (1987)

(quoting Armco, Inc. v. Hardesty, 467 U.S. 638, 644 (1984)).

In the context of this case, virtually every State employs tax

incentives for promoting economic development. Regardless

of arguments as to the efficacy of those incentive programs,

there is absolutely no evidence that they are interfering with

tree trade. Ironically, interference with free trade will arise

only if the Sixth Circuit’s opinion stands, thereby prohibiting

Ohio, and possibly Kentucky, Tennessee, and Michigan,

from utilizing the competitive tools that remaining States

have used for decades and continue to use.

ARGUMENT

Review of this matter is essential. That review could

easily (1) enforce the notions of federalism recognized by

this Court that permit States to encourage domestic

commerce; (2) resolve conflicting rulings that now exist

within the Sixth Circuit; and (3) prevent the Sixth Circuit's

ruling from significantly interfering with interstate

commerce and free trade.

i. The purpose of Ohio’s tax credit is to encourage

domestic industry.

Ohio’s investment tax credit does not have a

discriminatory purpose. The Ohio investment tax credit is

open and available to any manufacturer that chooses to do

business in Ohio. It applies equally to all manufacturers

regardless of where else they may choose to do business.

Moreover, the “design of a tax system to promote investment

that will provide jobs and prosperity to the citizens of the

taxing state” is a “laudatory goal” recognized by this Court.

Trinova, 498 U.S. at 385-86 (quoting Boston Stock Exch. v.

Tax Comm'n, 429 U.S. 318, 336 (1977)). This Court

recently reiterated that constitutional deference by

confirming that “[oJur earliest cases in particular embodied a

strong theme of federalism, emphasizing the ‘great respect’

that we owe to state legislatures and state courts in

discerning local public needs.” Kelo v. City of New London,

125 S.Ct. 2655, 2005 U.S. LEXIS 5011, at *24 (2005). In

the Commerce Clause context that translates into States

being free to “structur[e] their tax systems to encourage the

growth and development of intrastate commerce and

industry.” Boston Stock Exch., 429 U.S. at 336-37;

Caterpillar, 488 N.W. 2d at 192; Nordlinger v. Hahn, 505

U.S. 1, 12 (1992) (“[T]he State has a legitimate interest in

local neighborhood preservation, continuity, and stability.”).

a. State tax incentives encourage domestic

industry by promoting brownfield

revitalization

Federal and state policy (both of which are

implemented on the local level) have long encouraged and

incentivized businesses to invest in existing facilities as a

way to stem development onto undeveloped land. As urban

chambers of commerce, these Amici Curiae are on the front

lines of promoting and administering these - important

8

policies, yet without state leyislation they are virtually

powerless to effectively address the problem. One

commentator summarized this “brownfields redevelopment”

issue as follows:

[Brownfield sites continue to litter America’s

urban landscape, leading federal, state and

local policymakers to turn to more broad-

based environmentally impaired properties.

Familiar to economic development officials

and those who finance projects in designated

revitalization and empowerment zones, newly

adopted brownfield incentives take the form

of property tax abatements, low-interest loans,

grants, and expensing of project costs for

income tax purposes. . . . [This] movement

toward yovernment tax and financial

incentives reflects a recognition of the larger

community interest in successful brownfields

redevelopment...”

If those goals are not pursued on a local level, they may not

get implemented at all. “[S]tates may be more willing than

the federal government to supply necessary funds or offer

incentives in order to facilitate cleanup. States are especially

motivated because cmpty brownfields do not contribute to

the tax base of the states’ communities.”*

2 i tw “S

Scott Sherman, “Government Tax and Financial Incentives in

Brownfields Redevelopment: Inside the Developer's Pro Forma.” ||

N.Y.U. ENVTL. LJ. 317, 318 (2003).

: Brian Thomas Lang, “Note: Ohio's Voluntary Action Program:

Solving Ohio’s Toxic Waste Woes?” 60 Onlo ST L.J. 285, 286 (1999)

(citing Andrea Lee Rimer, “Environmental Liability and the Brownfields

Phenomenon: An Analysis of Federal Options fur Redevelopment.” 10

TUL. ENVTL. LJ. 63, 106 (1996) (“Mayors of thirty- three cities

)

These laudable policies encourage businesses to keep

jobs close to the people who need them most, to attract

capital investment, and to modernize existing manufacturing

buildings. Caterpillar, 488 N.W.2d at 192 (citing Boston

Stock Exch., 429 U.S. at 336-37). These policies support

state and local tax incentive programs and are of exceptional

public importance to every citizen, community, and local

government. Therefore, state and local tax incentives are a

common and useful tool, because they directly address and

promote each of these policy considerations. Rather than

consider those purposes and economics, the Sixth Circuit

improperly rejected those interests. See West Lynn

Creamery, Inc. v. Healy, 512 U.S. 186, 201 (1994) (stating

that the Court has “cschewed formalism for a sensitive, case-

by-case analysis of purposes and effects” when evaluating

business incentives).

b. State laws that fairly encourage in-state

business and domestic industry do not have a

discriminatory effect on interstate commerce

The Commerce Clause permits states to enact laws

that have the “effect of encouraging domestic industry.”

Bacchus. 408 U.S. at 271-72. Certainly, “[a] discriminatory

cffect does not result from fair encouragement of m-state

business....° Caterpillar, 488 N.W.2d at 193 (citing Armco,

Inc. v. Hardesty, 467 U.S. 638, 645-46 (1984); Boston Stock

iEvchange, 429 U.S. at 336-37)). Directly responsive to that

authority, the Sixth Circuit recognized that Ohio's

investment tax credit had the “same economic effect” as tax

programs that this Court ruled “dof ] not ordinarily run

estimated lost tax revenues of $131 million due to undeveloped

brownfields... Without programs designed to reinvigorate brownfields

in mMnNer cities, industry will continue to move to greenfields-pristine land

surrounding suburbs and localities will continue to lose valuable property

taxes critical to educate childien and maitain infrastructure.”)).

10

afoul” of the dormant Commerce Clause, such as subsidies.

Cuno v. Daimler Chrysler, Inc., 386 F.3d 738, 746 (6" Cir.

2004); see also West Lynn Creamery, 512 U.S. at 199, n.15

(quoting New Energy Co. v. Limhach, 486 U.S. 269, 278

(1988)). Yet, contrary to that finding, the Sixth Circuit still

concluded that Ohio’s statute had a discriminatory effect.

The reality is that the only discriminatory effect that could

result 1s if the Sixth Circuit’s ruling is permitted to stand.

See Hughes v Alexandria Scrap Corp., 426 U.S. 794, 817

(1976) (Stevens, J., concurring) (the lower court’s “novel

interpretation of the ‘burden’ concept represented a departure

which, had it been accepted, would impair rather than protect

interstate commerce.”).

Economic development, and therefore increased

domestic industry, occurs “‘when a local economy is

vitalized, for example, by the creation of a job that ts

supported by externa! resources.””* Basic economic theory

recognized by the federal government, States, municipalities,

and economic developers further establishes that direct job

- creation data must be multiplied many times to truly

understand the far-reaching benefits of new business

development.” When viewed in light of those economic

% Kathleen A. Norat & Eileen M. Lumorielo. “Clawbacks: A Help

or A Hindrance in Negotiating Incéntive Benefits?” J. MULTISTATE

TAX’N & INCENTIVES, 2004 WL 335216 at *27 (Feb. 2004) (citing

Economic Development Today: A Report to the Profession (Amerncan

Economic Developinent Council, 1984)). .

, See Regional Multipliers, U.S. Dept. of Commerce, March 1997

(3” ed.); Elizabeth Weissman & Catherine G. Ware, “A Holistic

Approach to Business Relocation and Expansions,” J. MULTISTATE:

TAX'N & INCENTIVES, 1999 WL 1711518 at *31 (Aug. 1999) ("Most

communities recognize that the creation of new jobs and the expenditure

of significant capital result in the attraction of ancillary, new industrtes to

a community, commonly referred to as the multiplier effect.”) (cing

Deming, Quality, Productivity, and Competitive Position (19%2)).

realities, States’ successes in encouraging intrastate

commerce, growth, and development is easily illustrated by

recent data on the direct and multiplier effects of state tax

incentive programs from within the Urban Chambers’ states.

From 1997 to the present, the Commonwealth of

Kentucky has generated over $10.8 billion in capital

investment as a result of its tax credits and wage assessment

programs with the creation of over 54,000 direct jobs in the

manufacturing sector and over 20,000 direct jobs in the non-

vovernmental services sector. The manufacturing jobs

venerate an estimated annual payroll of $1.6 billion, and the

service sector jobs generate an estimated annual payroll of

$851 million. Applying recognized economic modeling,”

these jobs result in an economic impact that includes over

138.000 indirect and induced jobs in the Commonwealth and

additional indirect and induced annual earnings of $2.7

billion in the Commonwealth. The total economic impact on

the state from these programs includes over 213,000 total

jobs and $5.1 billion total carnings.’

From 1997 through 2002, the State of Tennessee

generated over $17 billion in capital investment as a result of

its tax credit programs with the creation of over 39,000 jobs

in the manufacturing sector and 55,500 jobs in the non-

governmental services sector. These jobs generate an

estimated annual payroll of $4.17 billion. Applying the same

methodology, these jobs result in an economic impact that

includes-over 109,000 indirect and induced jobs in the State

. The Minnesota IMPLAN Group, Inc.’s IMPLAN System was

used and ts similar to the U.S. Department of Commerce's methodology

for estimated the economic impact of new investment. See Regional

Multipliers. U.S. Dept. of Commerce. March 1997 (3" ed.).

These analyses are based on data obtained from the Kentucky

Cabinet for Economic Development.

12

and additional indirect and induced annual earnings of $2.4

billion in the State. The total economic impact on the State

from these programs includes over 204,000 total jobs and

$6.6 billion total earnings.”

Therefore, the full beneficial measure of these

programs cannot be overstated. They are invaluable to job

and earnings creation, domestic industry, and other economic

benefits to the Urban Chambers and their members.”

Removal of this economic development too! will place an.

undue burden on States and local chambers of commerce as

they promote economic development, domestic business, and

interstate commerce. However, given the Sixth Circuit's

treatment of this case, that information and evidence was not

even considered.

c. The record below does not support a summary

finding that Ohioe’s tax incentive had a

discriminatory purpose or effect.

The District Court dismissed this matter on the

pleadings under Federal Rule of Civil Procedure |2(b). The

Sixth Circuit necessarily accepted the plaintiffs-respondents’

appeal of the matter with that procedural posture.

Nevertheless, based upon the plaintiffs-respondcnts’ mere

allegations regarding the purpose and effect of Ohio's tax

credit, the Sixth Circuit summarily granted judgment to

4 These analyses are based on data obtained from the State of

Tennessee. Tennessee's data ts based upon an aggregation of jobs inte

(wo categories-manufacturing and non-manufacturing.

: See Sherman, supra note 2, at 370-71 (“Success stories abound.

from a new urban baseball stadium on the site of a former-rail yard to a

vibrant mixed-use complex in the heart of the central business district. In

each of these ventures, the various incentives — regarding developers

willing to take on these projects notwithstanding the greater risks

involved — no doubt helped to move them from concep! to reality.”).

13

plaintiffs-respondents and enjoined Ohio from applying its

tax incentive program.'” Absent evidence by plaintiffs-

respondents of a discriminatory purpose or effect, summary

disposition in their favor was improper. Trinova, 498 U.S. at

385-86 (“Neither Trinova nor the secondary sources it relies

upon present any evidence that the SBT was inspired as a

way to export tax burdens or import tax revenues.’’).

Therefore, the appropriate resolution is to (a)

recoyznize, as a matter of law, the legitimate purpose and

effect of these state tax incentives or (b) require plaintiffs-

respondents to submit evidence that meets their burden of

proof on that issue, which petitioners, of course, would have

an opportunity to rebut and would likewise be able to present

their own evidence.

2. The Sixth Circuit Court of Appeals decided an

important Commerce Clause question in a way

that conflicts with the Michigan Supreme Court

and significantly departs from this Court’s long-

standing precedent.

In what should have ended the analysis entirely, the

Sixth Circuit acknowledged that the Ohio investment tax

credit 1s “equally-available to in-state and out-of-state

businesses.” Cuno, 386 F.3d at 743. In Complete Auto

Transit, Inc. v. Brady, this Court established the four-part

test for analyzing state tax programs under the Commerce

Clause. 430 U.S. 274, 279 (1977). In the lower court,

plaintiffs-respondents challenged the Ohio statute on only

one of those four elements. That ts, the parties did “not

dispute that the tax provisions at issue have sufficient nexus

os The Sixth Circuit has stayed enforcement of its ruling and

injunction pending resolutson of the parties” petitions for writs of

ccruorat.

14

with the state, are fairly apportioned, and are related to

benefits provided by the state.” Cuno, 386 F.3d at 742

(emphasis added). The plaintiffs-respondents’ only

contention was that Ohio's investment tax credit

discriminates against interstate commerce. That limited

constitutional challenge controls here and compels review

and reversal.

As this Court pronounced, “fa]t least in the interstate

commerce context . . . the antidiscrimination principle has

not in practice required much in addition to the requirement

of fair apportionment.” Container Corp. v. Franchise Tax

Bd., 463 U.S. 159, 171 (1983). In this case, the plaintiffs-

respondents provided no supporting evidence. Yet, contrary

to Container Corp.’s guidance, the Sixth Circuit found

discrimination where none existed.

In addition, the Sixth Circuit's opinion is directly

opposite that of the Michigan Supreme Court in Caterpillar,

addressing the constitutionality of a virtually identical state

tax credit program. There, the court addressed a statutory

deduction from Michigan’s single business tax related to the

acquisition of capital assets. Even though the deduction

applied only to “capital acquisition related to Michigan

business activity,” the Michigan Supreme Court found no

discrimination under the Commerce Clause. The Michigan

court found that no discriminatory purpose was wnplicated

because “the promotion and development and investment of

business” in a state does not violate the Commerce Clause.

Caterpillar, 488 N.W.2d at 192. In addition, the Michigan

court found no discriminatory effect because the tax

incentive was “available for any taxpayer.” //.

With essentially the same facts, the Sixth Circuit and

the highest court of Michigan reached opposite conclusions.

That alone is sufficient grounds for granting a writ of

1S

certiorari: to review and correct the conflicting rulings.

Supreme Court Rule 10(a).

3. Ohio's tax credit does not interfere with free trade

among the states.

While the economic incentive programs offered by

Ohio's sister states are distinguishable from Ohio’s

investment tax credit, the Sixth Circuit’s decision threatens

to create significant uncertainty and adverse economic

consequences for States, cities, “and businesses throughout

the Sixth Circuit and the country. Based upon the plaintiffs-

respondents’ admittedly novel theory, the Sixth Circuit

fundamentally altered Commerce Clause jurisprudence,

threatening the viability of economic development programs

throughout the country, preventing the Urban Chambers

trom fairly competing in the global economy, and placing an

undue burden on mterstate commerce.

In general, “constitutionality under the Commerce

Clause ... depends upon the practical effect” of the tax.

Departinent of Revenue v. Association of Wash. Stevedoring

Cos., 435 U.S. 734, 750 (1978); Complete Auto Transit, 430

U.S. at 279. For state tax programs im particular, this Court

has stated that they must have internal consistency, i.e., “a

state tax must be of a kind that, ‘if applied by every

jurisdiction, there would be no impermissible interference

with free trade.” American Trucking Ass'n, Inc. v. Scheiner,

482 US. 266, 284 (1987) (quoting Armco, Inc. v. Hardesty,

407 U.S. 638, 644 (1984)). Virtually every state employs tax

incentives for promoting cconomic development. And

regardless of any arguments as to the efficacy of those

incentive programs, there is absolutely no evidence that they

ure interfermg with free trade or harming any citizen or

16

taxpayer.'' The interference with free trade comes only by

means of the Sixth Circuit's opinion prohibiting Ohio from

employing the competitive tools used for decades and

available to the remaining States.

As illustrated by the job creation and economic

impact data provided in Section |.b. above, neither the Ohio

investment tax credit nor the tax incentives of its nearby

sister states have interfered with free trade. Rather, far from

impeding interstate commerce, the added investments and

accompanying multiplier eftect have generated significant

commerce, including a substantial number of jobs. The end

result, prior to the Sixth Circuit’s decision, was that all States

were benefiting from increased business operations in their

home territory attained via interstate competition. This is no

longer possible if the Sixth Circuit’s decision ts not reviewed

and, ultimately, reversed.

CONCLUSION

The Ohio investment-tax credit has neither an

impermissible purpose nor an impermissible effect. The

Court should grant the Ohio Petitioners’ and

DaimlerChrysler’s petitions for writ of certiorari and reverse

the Sixth Circuit’s ruling on the constitutionality of Revised

Code § 5733.33.

a1 Professor Enrich stated that citizens/taxpayers, such as the

Respondents, “can point to no direct reduction of [their] tax liability or

any assured expansion of services that the elimination of the challenged

tax break would yield.” Peter D. Enrich, “Saving the States From

Themselves: Commerce Clause Consiraints on State Tax Incentives for

Business,” | 10 HARV. L. REV. 377, 414 (Dee. 1996).

17

July 20. 2005

Respectfully submitted,

Jeffrey R. Teeters (counsel of record)

Matthew C. Blickensderfer

Robert D. Shank

Clint C. Watson

FROST BROWN TODD LLC

201 E. Sth St., 2200 PNC Ctr.

Cincinnati, Ohio 45202

(513) 651-6800

C. Edward Glasscock

William L. Skees, Jr.

FROST BROWN TODD LLC

400 W. Market St., 32™ Floor

Louisville, Kentucky 40202

Wilham C. Gullett

FROST BROWN TODD LLC

424 Church St., Suite 1600

Nashville, Tennessee 37219

Jack R. Cunningham

FROST BROWN TODD LLC

Lexington Financial Center

250 W. Main St., Suite 2700

Lexington, Kentucky 40507

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