# Amicus Curiae Brief — DaimlerChrysler Corp. v. Cuno

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0105%3A23

## Record

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

## Text

| [FILED
DD | pec 5- am

Nos. 04-1704 & 04-1

OF THE CLERK
eeeniaiadalenent S.
In the
Supreme Court of the United States
DAIMLERCHRYSLER WILLIAM W. WILKINS
CORPORATION, ET AL., Tax ComMm’R For THE
STATE OF OHIO, ET AL.,
Petitioners, Petitioners,
V. and Vv.

CHARLOTTE CUNO, ET AL., | CHARLOTTE CUNO, ET AL.,

Respondents. Respondents.

On Writ of Certiorari to the United
States Court of Appeals for the Sixth Circuit

Brier oF Amici Curiae CHAMBER OF COMMERCE OF THE
Unitep STATEs OF AMERICA, KENTUCKY CHAMBER OF
COMMERCE, MicHIGAN CHAMBER OF COMMERCE, OHIO
CHAMBER OF COMMERCE, TENNESSEE CHAMBER OF
Commerce & Inpustry, Detroir REGIONAL CHAMBER OF
COMMERCE, AND TOLEDO AREA CHAMBER OF COMMERCE
IN SUPPORT OF PETITIONERS

Rosin S. CONRAD CHARLES A. TROST

AMAR D. SAaRWAL Counsel of Record

NATIONAL CHAMBER MICHAEL G. STEWART
LITIGATION CENTER, INC. WALLER LANSDEN DortcH &
1516 H Street, N.W. Davis, PLLC

WasuHINGTON, D.C. 20036 511 Union Street, Suite 2700
(202) 463-5337 NASHVILLE, TN 37219-1760

Counsel for Amici Curiae (615) 244-6380

Becker Gallagher Legal Publishing, Inc. , 800.890.5001

TABLE OF CONTENTS

po gt. EP eC TE ROR ERAT TOTES i
pe SE ee ee iil
INTEREST OF AMICT CURIAE ... 2... .. cece. l
SUMMARY OF THE ARGUMENT ............. 2
I 664 ces ks xp bb edne daw Our eee 4

I. THE COURT OF APPEALS’ DECISION
ADVANCES A POLICY AGENDA THAT IS
NOT MANDATED BY THE COMMERCE
CLAUSE AND THAT IS GROUNDED IN A
FUNDAMENTAL MISUNDERSTANDING OF
THE GLOBAL NATURE OF THE
COMPETITION FOR HIGH-WAGE JOBS ... 4

Il. CONSISTENT WITH ORIGINAL INTENT
BEHIND THE COMMERCE CLAUSE, THIS
COURT HAS PROPERLY DRAWN A
DISTINCTION BETWEEN LAWS WHICH
EFFECT UNCONSTITUTIONAL TARIFFS
AND SIMILAR TRADE BARRIERS AND
LAWS WHICH MERELY DECREASE THE
COST OF DOING BUSINESS WITHIN A
oo ee 14

A. This Court’s Commerce Clause jurisprudence
is grounded in an economically meaningful
distinction between protectionist trade barriers
and lawful in-state efforts to create a favorable
er Ory eee ee 17

B. The court of appeals’ holding departs from the
original purpose of the Commerce Clause . . 22

C. The court of appeals’ holding necessitates a
formalistic distinction between credits and
EE: gi oS a He ace ae a Pe

Ill. AS IN QUILL CORP. V. NORTH DAKOTA, THIS
COURT SHOULD DEFER TO CONGRESS THE
COMMERCE CLAUSE PUBLIC POLICY
ISSUES ARISING OUT OF STATE AND
LOCAL BUSINESS TAX INCENTIVES .....

RP Pee Pe rye ree ee re

ili
TABLE OF AUTHORITIES
CASES

Associated Industries of Mo. v. Lohman,
ee eee GE 0 so cd ORE eee waa e se 17

Bacchus Imports, Lid. v. Director of Taxation,
ee 6 ch vise 0 8 bas eden ne 20-21

Bendix Autolite Corp. v. Midwesco Enterprises, Inc.,
4 FRE Se eee yee 26

Boston Stock Exchange v. State Tax Comm’n,
OE oo is oso aS nu wileee 4% 15, 17

Camps Newfound/Owatonna, Inc. v. Town of Harrison,
EE: oi Naw is oho wee ok WO 15, 28

Carbone, Inc. v. Town of Clarkstown,
ee I es sa ek aw ci ed wate wa 24

Commonwealth Edison Co. v. Montana,
er oo ok a 5 ba ok > heb ce bn ees 29

Cuno, et al. v. Daimler Chrysler, Inc., et al,
386 F.3d 738 (2004) .......... 15, 16, 21, 24, 25

Dean Milk Co. v. Madison,
A RS ERIN et tt LO Td i gate 17

Fulton Corp. v. Faulkner,
reer ee eae ee 15, 17, 22

iv

Goldberg v. Sweet,

Ss Be GE oo CN TRT A VST TOA 25
Hughes v. Alexandria Scrap Corp.,

CPEs FOUND 0 6 RSH 0 OO CRS DD 15, 25
James B. Beam Distilling Co. v. Georgia,

RR ft APP Oe ee ee eee 28
Moorman Manufacturing Co. v. Bair,

437 U.S. 267 (1978) ............. 15, 19, 20, 28
New Energy Company of Indiana v. Limbach,

SEB UD. TP CGD ccc ccscctevecs 14, 17, 23, 25
Oklahoma Tax Comm'n v. Jefferson Lines, Inc..,

FeO. Wey FP CNOOE. 0 0 ¢k0n0b bob henb heen 22
Quill Corp. v. North Dakota, ‘

504 U.S. 25G (1SSS) 0 cc cccens 4, 26, 27, 28, 29
United States v. Lopez,

SHREDS BPG o ocdacesttveckésueease 10
West Lynn Creamery v. Harris,

SER WS. TEPC oo wa tandenseudeuwe 23, 24
Westinghouse Electric Corp. v. Tully,

GOOD FeO CD voc bec kasi con eke canaus 4
OTHER AUTHORITIES

Bureau of Labor Statistics, State Average Annual Wages
for 2001-2002 (visited December 1 , 2005)
......... 11

Vv

Bush Bernard, Smyrna Nissan plant to add Pathfinder SUV,
THE TENNESSEAN, June 26, 2003, at lA .......... 12

Bill Carey, Force of Runyon’s personality lured
Nissan to Tennessee, THE TENNESSEAN (Nashville),
DS +h bocdadvd een obese Ch wes be wae s 12

Jorge Carrillo, Transactional Strategies and Regional
Development; The Case of GM and Delphi in Mexico,
JOURNAL OF INDUSTRY STUDIES 127 (2004) ........ 9

Economic Development and the Dormant Commerce
Clause: The Lessons of Cuno v. DaimlerChrysler and

lts Effect on State Taxation Affecting Interstate

Commerce, Joint Hearing Before Subcomm. on the
Constitution and Subcomm. on Commercial and
Administrative Law, 109" Cong., 1* Sess. 27 (2005) .. 7

ECONOMICS AND BUSINESS GROUP CENTER FOR
AUTOMOTIVE RESEARCH, THE CONTRIBUTION OF

THE INTERNATIONAL AUTO SECTOR TO THE U.S. ECONOMY:
AN UPDATE (2005) (available at

www .cargroup.org/pdfs/AIAMFinal.PDF) .... 8, 11, 12

~

Peter D. Enrich, Saving the States from Themselves:
Commerce Clause Constraints on State Tax Incentives
for Business, 110 HARV. L. REv. 377 (1996) . 6, 13, 17-18

THOMAS FRIEDMAN, THE WORLD IS FLAT; A BRIEF
HISTORY OF THE TWENTY-FIRST CENTURY (Farrar,
en ne we bk S bebe 10

Clayton P. Gillette, Business Incentives, Interstate
Commerce, and the Commerce Clause, 82 MINN. L.
REV. 447 (December 1997) .............. 12-13, 18

vi

GERALD GUNTHER, CONSTITUTIONAL LAw 93
og | TLE Tee ETT EE ae 22

Danny Hakim, For a G.M. Family, the American Dream
Vanishes, N.Y. Times, November 19, 2005 ........ 10

PAUL J. HARTMAN AND CHARLES A. TROST, FEDERAL
LIMITATIONS ON STATE AND LOCAL TAXATION 2d
ERIE, ee ty RE RE LTE 28

Walter Hellerstein and Dan T. Coenen, Commerce

Clause Restraints on State Business Development
Incentives,

81 CORNELL L. REV. 789 (May 1996) .... 24, 25, 27-28

JOHN HUMPHREY AND OLGA MEMODOVIC, UNITED NATIONS
INDUSTRIAL DEVELOPMENT ORGANIZATION, THE GLOBAL
AUTOMOTIVE INDUSTRY VALUE CHAIN: WHAT PROSPECTS
FOR UPGRADING BY DEVELOPING COUNTRIES (2003)
(available at www.unido.org/file-storage/download/?file-id =
GEE 5. doeGs bwEs 0 ek eke teees be eee 8,9

Charles E. McClure, Tax competition; is what’s good
for the private goose also good for the public gander?,
ps URE kn CkSB eee des- 4s 18

THE FEDERALIST No. 42 (James Madison) ...... 22-23
Chris Micheli, A 50-State Comparison of Tax Incentives

for Manufacturing Equipment Purchases, 12 STATE TAX
PEE 6:46 bébind*. Moreover, jobs in automotive plants are a small
fraction of the total employment created by such investments. _
For each direct hire at an automotive assembly plant, on
average 9.4 additional jobs are created at automotive suppliers
and other businesses. /d. at 18.

Even these geometric increases in employment have
proven to be just the tip of the iceberg of economic benefits
accruing to those States that have successfully recruited major
automotive investments. In State after State, initial
investments in a single plant have generated years of
expansions and additional, related investments. In Ohio, for
example, Honda’s small initial investment in a 64-employee
motorcycle plant in 1979 paved the way for four plants
representing a capital investment of $6.3 billion and
employing 16,000 people. Ken Thomas, Auto industry,

? Domestic manufacturers also offer very high-wage jobs. Average pay
for GM’s hourly workers, including benefits, was $74.00 per hour in
2004. Arundhati Parmar, GM growth might bring 180 workers, FORT
WAYNE (Indiana) JOURNAL-GAZETTE, November 19, 2005, at B9.

12

lawmakers watching S. Ct on tax incentive case, ASSOCIATED
PRESS, September 28, 2005. In Kentucky, Toyota’s original
1985 investment of $800 million in a single assembly plant for
200,000 vehicles per year has expanded to a $4.5 billion plant
producing 435,000 vehicles per year and employing 7,000
people. One Kentucky newspaper recently editorialized that
“this one industrial recruiting success did more for the state
than the entire agendas of other governors.” THE PADUCAH
(Kentucky) SUN, May 20, 2005. In Tennessee, Nissan’s
initial U.S. manufacturing facility, attracted in 1980 with a
$30 million incentive package, has entirely transformed the
State’s economy, spawning the location of more than 950
parts plants collectively estimated to employ 33% of the
State’s manufacturing workforce. Bush Bernard, Smyrna
Nissan plant to add Pathfinder SUV, THE TENNESSEAN, June
26, 2003, at 1A. Nissan itself has since opened an additional
Tennessee manufacturing plant and increased its Tennessee
employment from 2,200 in 1980 to approximately 8,000 in
2005. Bill Carey, Force of Runyon’s personality lured Nissan
to Tennessee, THE TENNESSEAN (Nashville), May 9, 2004, at
4E; Keith Russell, Transfers, local hires to have shot at high-
end jobs, THE TENNESSEAN (Nashville), November 11, 2005,
at '0A. All told, investments by international automotive
companies in the United States had, by 2003, created 55,000
direct jobs and generated investment of over twenty-two
billion dollars in the U.S. economy. CONTRIBUTION OF THE
INTERNATIONAL AUTOMOTIVE SECTOR, supra, at 4.

Respondents question whether such substantial, long term
economic benefits justify the cost of incentives like Ohio’s
investment tax credit, but tellingly present no conclusive
empirical evidence to support their claims. At best
“[e}mpirical studies that seek to evaluate [Respondents’]
allegations are inconclusive.” Clayton P. Gillette, Business
Incentives, Interstate Competition, and the Commerce Clause,

13

82 MINN. L. REV. 447, 452 (December 1997). Certainly, the
States that actually compete for investments believe that
incentives are an effective and, indeed, essential tool for
attracting automotive plants and similar facilities. And
practical experience seems to bear out the theory, put forward
by some commentators, that incentives, far from harming the
national economy, actually assist in the rational allocation of
resources therein. /d. at 448. The States that have provided
substantial incentive packages, like Ohio, Tennessee and
Kentucky, because of their existing automotive supplier base,
have been the States that have stood to derive particularly
significant economic benefits from automotive sector
investment because the presence of suppliers substantially
enhances the jobs multiplier effect of such direct investment.
Phillips, supra. Those States also have larger numbers of
low-wage workers in desperate need of high-paying jobs,
while lacking some of the attributes, like ocean ports, natural
resources, and established high-tech research communities,
that drive the economies of many high-wage States that have
not seen the need to provide similar incentive packages.

Proponents of Respondents’ anti-incentive agenda have
cautioned against “[a]ttributing to state political actors an
unrealistic reservoir of both information and economic
rationality.” Enrich, supra, at 402. But Respondents’ failure
to acknowledge the global nature of the competition for jobs
strongly suggests that the single court-mandated economic
policy they promote would be neither optimal nor rational.
To the extent the Respondents can assemble a coherent body
of evidence to demonstrate that incentives are in fact bad
economic policy, they should present that evidence to
Congress or to the State legislatures that are best equipped to
evaluate such evidence in light of countervailing evidence and
in a position to react appropriately to changing economic and
societal conditions. In the meantime, this Court should

14

decline Respondents’ invitation to strait-jacket States with an

outdated policy that has long been rendered irrelevant by the

rapidly-changing world economy.

Il. CONSISTENT WITH ORIGINAL INTENT BEHIND
THE COMMERCE CLAUSE, THIS COURT HAS
PROPERLY DRAWN A DISTINCTION BETWEEN
LAWS WHICH EFFECT UNCONSTITUTIONAL
TARIFFS AND SIMILAR TRADE BARRIERS AND
LAWS WHICH MERELY DECREASE THE COST
OF DOING BUSINESS WITHIN A GIVEN TAXING
STATE.

In its unanimous decision in New Energy Company of

Indiana v. Limbach, 486 U.S. 269, 278 (1988), this Court

succinctly articulated the thrust of its longstanding approach
to business incentives under the Dormant Commerce Clause:

The Commerce Clause does not prohibit all state
action designed to give its residents an advantage in
the marketplace, but only action of that description in
connection with the State’s regulation of interstate
commerce. Direct subsidization of domestic industry
does not ordinarily run afoul of that prohibition;
discriminatory taxation of out-of-state manufacturers
does.

In cases in which this Court has evaluated State business
incentives under the Commerce Clause’s anti-discrimination
principle, it has consistently adhered to this central distinction
between discriminatory trade barriers and non-discriminatory
incentives which merely lower the cost of doing business in
a given State. As many commentators have observed, this
Court has consistently struck down as discriminatory those
statutes that have imposed tariff-like barriers to interstate sales
and movements or otherwise penalized taxpayers for engaging
in interstate commerce. See Philip M. Tatarowicz and

15

Rebecca F. Mims-Velarde, An Analytical Approach to State
Tax Discrimination Under the Commerce Clause, 39 VAND.
L. REV. 879, 928 (May 1986). By contrast, this Court has
upheld statutes which have merely “encourage[d] the growth
and development of intra-state commerce and industry”
through measures, like direct subsidies or apportionment
schemes favorable to in-state businesses, which simply lower
the cost of doing business in a taxing State without burdening
interstate transactions. Boston Stock Exch. v. State Tax
Comm'n, 429 U.S. 318, 336 (1977); see, e.g., Hughes v.
Alexandria Scrap Corp., 426 U.S. 794, 816 (1976)(upholding
subsidy); Moorman Manufacturing Co. v. Bair, 437 U.S.
267 (1978)(upholding single factor apportionment scheme).
In striking down Ohio’s investment tax credit, the court of
appeals rejected the notion that this distinction embodied in
this Court’s decisions creates a principled rule of law:
The defendants maintain that the Supreme Court’s
opinions should be read narrowly to hold that tax
incentives ... are permissible as long as they do not
penalize out-of-state economic activity.../n their view,
the Commerce Clause is primarily concerned with
economic protectionism - that is, regulatory measures
designed to benefit local interests by burdening out-of-
state commerce.. Although it is arguably possible to fit
certain of the Supreme Court's cases into this
framework, it is clear that the Court has not adopted
this approach. . .

Cuno, et al. v. Daimler Chrysler, Inc., et al., 386 F.3d 738,
745 (2004) (emphasis supplied). Of course, this Court has
repeatedly stated that the Commerce Clause was designed as
a “barrier against protectionism.” Camps
Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S.
564, 575 (1996); see also, Fulton Corp. v. Faukner, 516 U.S.

16

325, 330 (1994). Nevertheless, the court of appeals
abandoned this Court’s focus on protectionist measures in
favor of the virtually limitless test for discrimination urged by
the Respondents, holding that the Ohio credit is
unconstitutional because “the economic effect of the Ohio
investment tax credit is to encourage further investment in-
state at the expense of development in other states.” Cuno,
386 F.3d at 745.

This Court should reject the court of appeals’ unbridled
expansion of the Commerce Clause in favor of its existing
framework for at least three reasons. First, this Court’s
longstanding distinction between protectionist burdens on
interstate commerce and purely intra-state incentives is
economically meaningful because it protects interstate trade
while leaving States free to reduce tax burdens on in-state
businesses. Because this Court’s approach is grounded in an
analysis of the economic effects, it provides a workable test
with discernable limits to courts’ supervision of the nation’s
economy. Second, this Court’s focus on protectionist trade
barriers is consistent with the intent of the Framers, who
enacted the Commerce Clause in response to interference with
interstate commerce—protectionist tariffs. Third, this Court’s
existing Commerce Clause jurisprudence properly requires no
artificial distinction between subsidies and tax credits, which
are economically equivalent and should be treated alike for
tax purposes. While Dormant Commerce Clause
jurisprudence has been criticized as inconsistent, in the area
of business incentives a workable rule consistent with original
intent has emerged. That rule should be applied to the Ohio
tax credit at issue—a purely intra-state incentive that imposes
no trade barrier burdensome to businesses outside that State.

17

A. This Court’s Commerce Clause jurisprudence is
grounded in an economically meaningful distinction
between protectionist trade barriers and lawful in-
state efforts to create a favorable business climate.

The decision of the court of appeals expands the concept
of Commerce Clause discrimination into an entirely new
economic realm. To date, this Court has only used the
negative Commerce Clause to strike down statutes which have
had a particular effect on the nation’s economy—creating
direct or indirect barriers to trade. As this Court observed in
Fulton Corp.:

In its megative aspect, the Commerce Clause
“prohibits economic protectionism - that is ‘regulatory
measures designed to benefit instate economic
interests by burdening out-of-state competitors.’”
516 U.S. at 330 (quoting Associated Industries of Mo. v.
Lohman, 511 U.S. 641, 647 (1994) (quoting New Energy, 486
U.S. at 273-74)). A classic example of such a protectionist
burden is that struck down in Boston Stock Exchange—a
transaction tax which increased when part of the targeted
transaction, the sale of a share of stock, occurred outside the
taxing State in interstate commerce. 429 U.S. 318 (1977).
As the Court noted, the effect of such taxes, if replicated
nationally, would be to make interstate trade artificially
expensive and thereby hinder trade among the States—to
“invite a multiplication of preferential trade areas
destructive’ of the free trade which the [Commerce] Clause
protects.” Jd. at 329 (quoting Dean Milk Co. v. Madison,
340 U.S. 349, 356 (1951)).

The economic effect of intra-state incentives like the Ohio
investment tax credit is entirely different. A credit or subsidy
awarded ¢> in-state companies merely reduces the cost of
doing business in a given State. Replicated nationwide, such

18

business incentives have the primary effect, as critics of
incentives have observed, of reducing businesses’ aggregate
tax rates. Enrich, supra, at 387. To the extent such laws have
an incidental effect on interstate commerce, it is to promote
such commerce by “driv[ing] down the level of state taxation
of mobile capital to its economically optimal level.” /d. at
401 (paraphrasing Charles E. McClure, Tax competition: is
what’s good for the private goose also good for the public
gander?” 39 NAT’L TAX J. 341, 341-43 (1986)). While some
academic commentators might view low business tax rates as
a social problem, it is clearly a different “problem” than
protectionist trade barriers—the sole problem at which the
Commerce Clause is directed.

The significance of the economic distinction inherent in
this Court’s anti-discrimination cases is effectively illustrated
by an example developed by Professor Clayton P.
Gillette—the competition by law schools for qualified
professors. Gillette, supra, at 482. As Professor Gillette
notes, law schools use incentives, such as pay and benefits, to
lure law professors from law schools in other States. This
practice is designed to influence, and undoubtedly does
influence, interstate commerce, but one “would be surprised
to hear anyone claim that B State ought to be constrained by
the Commerce Clause from bidding for Professor A’s
services.” Jd. By contrast, few would be surprised if the
Commerce Clause were invoked to strike down a requirement
that professors teaching in a given State be graduates of that
State’s law schools or pay a tax not levied on graduates of
those schools. The difference lies in the effect of such
policies on the national economy. Just as business incentives
have an aggregate effect of creating a favorable low tax
business climate, the competition to offer salaries and benefits
to law professors has the effect of creating a favorable
employment environment which in the aggregate benefits all

19

professors. By contrast, a discriminatory tax or prohibition
against professors from out-of-state law schools imposes, like
a tariff on goods, costs on law professors as a group,
hindering their movement to the States in which they are in
greatest demand and thereby impoverishing the law teaching
profession and the nation. Tax incentives like Ohio’s
investment tax credit affect commerce in precisely the same
way as a high salary offer to a law professor, a well-
engineered bridge or a low aggregate corporate income tax
rate - by making a State an attractive place to do business.
Such government activities erect no barrier to interstate
commerce, however, and have never been deemed
discriminatory by this Court.

In one case, this Court specifically applied these principles
to a tax incentive statute designed to make a State attractive
to business investment by lowering the income taxes of in-
State taxpayers and held that the incentive did not run afoul of
the Commerce Clause. See Moorman Manufacturing, 437
U.S. 267 (1978). In Moorman Manufacturing, this Court
evaluated Iowa’s single factor income-tax apportionment
scheme, which apportioned income to Iowa based on a
taxpayer’s in-state sales, without consideration for in-state
property and payroll. /d. - The effect of the single factor
apportionment scheme is to reduce taxes on businesses with
property and payroll in Iowa as compared with States using
the more typical three factor apportionment formulas, which
apportion tax based on in-state sales, property and payroll.
This Court rejected any notion that lowa’s business-friendly
tax scheme violated the Commerce Clause:

Appellant also contends that the Iowa formula
discriminates against interstate commerce in violatior
of the Commerce Clause and the Equal Protection
Clause, because an Illinois corporation doing business
in lowa must pay tax on a greater portion of its

20

income than a local lowa company, and an Iowa
company doing business in Illinois will pay tax on less
of its income than an Illinois corporation doing
business in lowa. The simple answer, however, is that
whatever disparity may have existed is not attributable
to the Iowa statute. It treats both local and foreign
concerns with an even hand; the alleged disparity can
only be the consequence of the combined effect of the
Iowa and Illinois statutes, and Iowa is not responsible
for the latter.

Id. at 278, n. 12 (emphasis supplied). The same logic applies
to Ohio’s investment tax credit, to a low corporate tax rate,
or to a well-paved road. To the extent such business-friendly
governmental actious attract or influence interstate commerce,
it is not because they impose a discriminatory trade barrier
but because they have created favorable business conditions.
Should other States choose to replicate the favorable
conditions, taxes or other burdens on businesses will be
reduced. Should they choose not to provide equivalent
business conditions, any resultant disparity will proceed from
that decision, not from any discrimination inherent in one
State’s passage of laws designed to attract business with
apportionment rules, low tax rates, or other provisions
favorable to business operations.

Because this Court has never suggested that incentives
which benefit businesses by simply reducing their tax burden
are, by virtue of that reduction, discriminatory, the
Respondents are forced to divorce the language in this Court’s
Commerce Clause cases from its economic context to
construct support for their challenge to Ohio’s investment tax
credit. It is certainly true, as Respondents note, that this
Court has stated that the Commerce Clause prohibits taxes
which “[provide] a direct commercial advantage to local
businesses” and noted that “[t}]he determination of

21

constitutionality does not depend on whether one focuses on
the benefited or the burdened party.” Bacchus Imports, Ltd.
v. Director of Taxation, 468 U.S. 263, 273 (1984). But such
statements only have meaning if viewed in the context that
they were made. Bacchus involved a tax scheme which
effectively created a tariff on liquor produced outside Hawaii
by exempting local producers from a generally-applicable tax.
Id. at 273. Unsurprisingly, this Court, noting that “[a]
finding that state legislation constitutes ‘economic
protectionism’ may be made on the basis of ... discriminatory
purpose,” determined that such a scheme was protectionist
and unconstitutional. /d. at 270. The fact that the scheme
was structured as a “benefit”—an exception from tax
effectively available only to local producers—did not make it
any less a trade barrier. /d. at 271.

By separating Bacchus from its economic context—from
the plainly protectionist effect of the tariff effectively created
by Hawaii’s liquor tax scheme—the court of appeals has
abandoned this Court’s Commerce Clause jurisprudence for
an unworkable rule of law that has no discernible or
justifiable limits. If, in fact, any law which provides a
“benefit” to businesses and thereby attracts investment to a
State violates the Commerce Clause, then virtually any tax
credit, subsidy, low tax rate, business friendly apportionment
scheme, or, for that matter, road, convention center or other
investment designed to make a State attractive to business
violates the Constitution. The court of appeals’ cencern that
“the economic effect of the Ohio tax credit is to encourage
further investment in-state at the expense of development in
other states” would apply with equal force to any of these
activities. Cuno, 386 F.3d at 745. Such a standard would
run directly contrary to this Court’s holding in Moorman
Manufacturing. More fundamentally, it would defy common
sense and detach this Court’s Commerce Clause

22

jurisprudence from its longstanding economic moorings.
Having created a body of case law which establishes an
economically meaningful standard for discerning
unconstitutional protectionist legislation, this Court should
reject the court of appeals’ unprincipled departure from that
standard.

B. The court of appeals’ holding departs from the
original purpose of the Commerce Clause.

In distinguishing between unlawful trade barriers and
lawful intra-state incentives, this Court has carried out the
intent of the Framers. As this Court has observed, striking
down protectionist tariffs

effectuates the Framers’ purpose to ‘prevent a State

from ... jeopardizing the welfare of the Nation as a

whole, as it would do if it were free to place burdens

on the flow of commerce across its borders that

commerce wholly within those borders would not

bear.’

Fulton Corp., 516 U.S. at 330 (quoting Oklahoma Tax
Comm'n v. Jefferson Lines, Inc., 514 U.S. 175, 180 (1995))
(emphasis supplied). The central purpose of the Commerce
Clause was to eliminate such “burdens on the flow of
commerce,” which had plagued the States under the Articles
of Confederation. See GERALD GUNTHER, CONSTITUTIONAL
Law 93 (12" Ed. 1991) (emphasizing that “[t}he national
Commerce Power, it was hoped, would put an end to ...
protective tariffs on imports from other states”). As James
Madison observed:

[t}he defect of power in the existing Confederacy tc
regulate the commerce between its several members is
.. Clearly pointed out by experience. ... A very
material object of [the power to regulate foreign
commerce] was the relief of the States which import

23

and export through other States, from the improper
contribution levied upon them by the latter. Were
these at liberty to regulate the trade between State and
State, it must be foreseen that ways would be found to
load the articles of import and export, during the
passage through their jurisdiction, with duties which
would fall on the makers of the latter and the
consumers of the former.

THE FEDERALIST No. 42 (James Madison) (emphasis
supplied). This Court’s application of the Commerce
Clause’s anti-discrimination principle thus addresses the
particular econorsic problem that Madison and the other
authors of the Constitution designed that Clause to solve. The
court of appeals’ interpretation of the Commerce Clause
Strains to address a very different issue—the reduction and
elimination of taxes on businesses. While whether reducing
taxes on business through incentives of the sort at issue is
wise public policy may be open to debate in the legislative
context, low taxes on business were simply not an issue that
concerned the Framers. Accordingly, it has no relevance to
the issue in this case.
C. The court of appeals’ holding necessitates a
formalistic distinction between credits and
subsidies.

The court of appeals’ analysis necessarily requires this
Court to abandon its focus on the economic substance of
challenged legislation and adopt a formalistic distinction
between subsidies and other, equivalent economic
development incentives such as tax credits. This Court has
long recognized “that direct subsidization of domestic
industry does not ordinarily run afoul of the negative
Commerce Clause.” West Lynn Creamery v. Harris, 512
U.S. 186, 199, n. 15 (1994) (quoting New Energy, 486 U.S.

24

at 278); see also, Carbone, Inc. v. Town of Clarkstown, 511
U.S. 383 (1994) (noting that a town could avoid a burden on
interstate commerce by directly subsidizing a private solid
waste operation). In striking down Ohio’s investment tax
credit, the court of appeals concedes that “a direct subsidy ...
would no doubt have the same economic effect” as the
challenged credit. Cuno, 386 F.3d at 746. This is consistent
with the analysis offered by Professor Hellerstein in the law
review article cited by the court of appeals, in which he notes
that “[e}conomists know that the real-world impact of such a
subsidy mirrors the effect of the credit.” Walter Hellerstein
and Dan T. Coenen, Commerce Clause Restraints on State
Business Development Incentives, 81 CORNELL L. REV. 789,
835 (May 1996). The court of appeals offers no legally
coherent basis for distinguishing economically equivalent
subsidies and credits other than the conclusory statement that
“the distinction ... results from the fact that the tax credit
involves state regulation of interstate commerce through its
power to tax”—in other words, taxes and subsidies are
different because taxes are taxes and subsidies are subsidies.
Cuno, 386 F.3d at 746.

The court of appeals’ approach is a complete departure
from this Court’s historic application of the Commerce
Clause, which “eschew(s] such formalism for a sensitive,
case-by-case analysis of purposes and effects.” West Lynn
Creamery, 512 U.S. at 201. True to that approach, this Court
has never endorsed an artificial rule that subsidies are a
distinct class of incentives that are excluded from scrutiny
under the Commerce Clause. To the contrary, where
subsidies have been used as part of a scheme designed to erect
a trade barrier to interstate commerce by allowing in-state
taxpayers to evade a facially neutral tax, this Court has not
hesitated to strike down such schemes. See West Lynn
Creamery, 512 U.S. 186 (1994). As this Court observed in

25

New Energy, subsidies that pass constitutional muster do so,
not because of some special Commerce Clause doctrine
applicable to subsidies, but because subsidies, by their nature,
“are not generally ‘connected with the State’s regulation of
interstate commerce.’” Cuno, 386 F.3d at 746 (quoting New
Energy, 486 U.S. at 278). As Justice Stevens has observed,
the Commerce Clause does not “inhibit a State’s power to
experiment with different methods of encouraging local
industry” —a principle that is not dependent on the form of
method chosen; “/w/hether the encouragement takes the form
of a cash subsidy, a tax credit, or a special privilege intended
to attract investment capital, it should not be characterized as
a ‘burden’ on commerce.” Hughes v. Alexandria Scrap
Corp., 426 U.S. 794, 816 (1976) (Stevens, J. concurring)
(emphasis supplied). This Court’s treatment of subsidies is
simply an expression of the Commerce Clause principles that
inform its analysis of other incentives; protectionist tariff
barriers are prohibited while statutes which simply lower the
cost of doing business within a taxing State generally pass
muster.

Commentators cited by the court of appeals have
suggested that tax credits should be distinguished from
subsidies because unlike subsidies they do not have to be
budgeted and are therefore subject to less political scrutiny.
See, e.g., Hellerstein and Coenen, supra, at 847. Whatever
the significance of this purported distinction from a public
policy standpoint, it has nothing to do with the proper
application of the Commerce Clause. “It is not a purpose of
the Commerce Clause to protect state residents from their
own state taxes.” Goldberg v. Sweet, 488 U.S. 252, 266
(1998). To the extent that citizens of a State become
concerned that their legislators enact tax credits too readily,
they can effectively address that problem through the political
process.

26

If1.AS IN QUILL CORP. V. NORTH DAKOTA, THIS
COURT SHOULD DEFER TO CONGRESS THE
COMMERCE CLAUSE PUBLIC POLICY ISSUES
ARISING OUT OF STATE AND LOCAL BUSINESS
TAX INCENTIVES.

This Court should take into consideration the “substantial
reliance” by countless industry and public officials on
longstanding tax incentives and properly “leave essentially
legislative judgments to the Congress” regarding the benefits
and burdens on interstate commerce created by such
incentives. Bendix Autolite Corp. v. Midwesco Enterprises,
Inc., 486 U.S. 888, 897-898 (1988) (Scalia, J., concurring in
Judgment). This Court could follow the fair and prudent
course set by it in Quill, 504 U.S. at 298. In Quill, this Court
was called upon to address whether the Due Process Clause
and Commerce Clause prohibit States from taxing out-of-state
mail-order vendors. /d. The Court reversed its earlier
precedent with respect to the Due Process issue, but, noting
that existing precedents had “engendered substantial reliance
and ha[d] become part of the basic framework of a sizable
industry,” the Court declined to reverse its longstanding
Commerce Clause position that mail-order businesses could
not be taxed by States in which they had no substantial
physical presence. /d. at 317. Important to this Court’s
determination was the recognition that

[t}his aspect of our decision is made easier by the fact

that the underlying issue is not only one that Congress

may be better qualified to resolve, but also one that

Congress has the ultimate power to resolve. No matter

how we evaluate the burdens that use taxes impose on

interstate commerce, Congress remains free to
disagree with our conclusions.

27

Id. at 318. Would it therefore not be better that this Court
similarly consider the reliance interests of manufacturers who
have invested substantial sums induced to do so by significant
tax incentives and hold that incentives of the sort at issue do
not run afoul of the Dormant Commerce Clause?

Certainly, the reliance interests implicated in this case are
far weightier than those protected by this Court in Quill.
Quill involved a single industry; the court of appeals’ decision
in this case calls into question a vast framework of incentives
relied on by manufacturers operating in virtually every State
in the Union. See Chris Micheli, A 50-State Comparison of
Tax Incentives for Manufacturing Equipment Purchases, 12
STATE TAX NOTES 1739 (1997).

As in Quill, this Court should reverse on substantive
grounds the court of appeals, reinstate the district court
decision, and leave to Congress the task of balancing these
extensive reliance interests, as well as the significant
economic benefits that have motivated State legislatures to
adopt the incentives on which industries now rely, against the
anti-tax incentive policy agenda advocated by the
Respondents. While this case does not involve a question of
law to which this Court has directly spoken as did Quill, it
does involve an issue as to which informed taxpayers could
have reasonably inferred from this Court’s precedents that tax
incentives such as those at issue were well within acceptable
limits set under the Commerce Clause, and made informed
investment decisions in reliance on those references. The
Respondents concede that this Court’s Dormant Commerce
Clause jurisprudence does not directly mandate the court of
appeals’ decision to strike down the most commonly available
type of business tax incentive in the United States. See
Walter Hellerstein, supra, at 805. Indeed, the Respondents
themselves characterize their position as a “novel legal

28

theory.” (No. 01-3960, Cuno v. DaimlerChrysler Corp. (6"
Cir.), Pl. Br. at viii).

This Court has recognized that “novel legal theor[ies}” of
evaluated and promulgated by Congress. Quill, 504 U.S. at
318 (refusing to adopt an “economic” rather than “physical”
presence Commerce Clause nexus requirement); Moorman
Manufacturing, 437 U.S. at 278-280 (refusing to mandate a
formula for apportionment of income of multi-state
enterprises on the grounds that such action would necessitate
“extensive judicial lawmaking”); see also, Camps
Newfound/Owatonna, Inc., 520 U.S. at 620 (Thomas, J.,
dissenting) (“the Court should confine itself to interpreting the
text of the Constitution, which itself seems to prohibit in plain
terms certain of the more egregious state taxes on interstate
commerce ... and leaves to Congress the policy choices
necessary for any further regulation of interstate commerce” ).
As in Quill and Moorman, this Court should decline
Respondents’ invitation to impose such a novel legal theory
on the States by judicial fiat and thereby avoid opening the
Pandora’s Box of when and to what extent application of the
novel theory must, cannot, should, or should not be given
retrospective effect. See, e.g., James B. Beam Distilling Co.
v. Georgia, 501 U.S. 529 (1991); see also; HARTMAN AND
TROST, FEDERAL LIMITATIONS ON STATE AND LOCAL
TAXATION 2D, § 7.5, pp. 64-104 (2003) (analyzing cases
addressing the validity of claims for retroactive relief in tax
cases).

Business development incentives are an area of law
particularly suited to Congressional action. Unlike this Court,
which must address the issue from the narrow perspective of
the specific facts and statute at issue, Congress can create a
national scheme which broadly addresses such incentives in
the totality of their various iterations and circumstances,

29

either by allowing them, or banning them entirely, or placing
all or certain types of incentives in protected safe harbors.’
Not only would such a Congressionally mandated scheme
place States in all Circuits on an equal footing, but it would
immediately increase the value of those incentives to both the
States and the businesses that rely on them by eliminating the
legal uncertainty created by the decision of the court of
appeals. Congress is also in a unique position to address the
interests of those businesses that have made substantial
investments in reliance on such incentives, often after
evaluating opportunities in many competing States and
nations. To the extent Congress agrees with the Respondents
that, irrespective of the opinion of legislatures throughout the
United States, certain incentives are bad public policy and
place an unreasonable burden on interstate commerce, it can
readily enact “grandfather” or “sunset” provisions carefully
tailored to preserve tax benefits for which businesses have
already bargained-in good faith.

A decision of this Court reversing the holding of the court
of appeals on the ground that the Dormant Commerce Clause
does not prohibit the incentive at issue will leave Congress,
should it so choose, free to form a national policy on business
development incentives. As this Court observed in Quill,
“Congress has the power to protect interstate commerce from
intolerable or even undesirable burdens. In this situation, it
may be that ‘the better part of wisdom and valor is to respect
the judgment of the other branches of the Government.’”
Quill, 504 U.S. at 318-319 (quoting Commonwealth Edison
Co. v. Montana, 453 U.S. 609, 637-638 (1992)).

. A bill has been introduced in Congress to protect commonly used
incentives, including credits for in-state investment of the sort challenged
in this litigation, from Commerce Clause challenge. S. 2881, 109th
Cong., 1* Sess. (2005).

30

CONCLUSION

For the foregoing reasons, and those set out in the briefs
of Petitioners, this Court should reverse the court of appeals.

Respectfully submitted,

Charles A. Trost
Counsel of Record

Michael G. Stewart
WALLER LANSDEN DORTCH

& Davis, PLLC :
511 Union Street, Suite 2700
Nashville, Tennessee 37219
(615) 244-6380

Robin S. Conrad

Amar D. Sarwal

NATIONAL CHAMBER LITIGATION
CENTER, INC.

1516 H Street, N.W.

Washington, DC 20036

(202) 463-5337

Attorneys for the Chamber of Commerce of
the United States of America, Kentucky
Chamber of Commerce, Michigan
Chamber of Commerce, Ohio Chamber of
Commerce, Tennessee Chamber of
Commerce & Industry, Detroit Regional
Chamber of Commerce, and Toledo Area
Chamber of Commerce

Amici Curiae

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0105%3A23. Public record. Not legal advice.