# Amicus Curiae Brief — DaimlerChrysler Corp. v. Cuno

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0105%3A09

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2006
- **Citation:** 547 U.S. 332

## Text

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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.
°
WILLIAM W. WILKINS, ET AL.,
Petitioners,
Vv.
CHARLOTTE CUNO, ET AL.,
Respondents.

¢
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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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0105%3A09. Public record. Not legal advice.