Amicus Curiae Brief — DaimlerChrysler Corp. v. Cuno

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. |, 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:

[B]rownfield 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 olficials

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 “ - -

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 Wes?” 60 On1io ST LJ. 285, 286 (1999)

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

Phenomenon: An Analysis of Federal Options tor 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 “eschewed 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. 468 U.S. at 271-72. Certainly, “[a] discriminatory

cffect 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

Evehange, 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 fax revenues of $131 million due to undeveloped

brownticlds.. . Without programs designed to reinvigorate brownfields

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

surrounding suburbs and localities will continue to lose vaiuable property

taxes critical to educate children and maintain 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 is 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 Incentive Benefits?” J. Mut-rista rr

TAX’N & INCENTIVES, 2004 WL 335216 at *27 (Feb. 20004) (citing

Economic Development Today: A Report to the Profession (Ameren

Economic Development Council, 1984)).

, See Regional Multipliers, U.S. Dept. of Commerce, Mareh 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 industries to

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

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

realities, States’ successes in encouraging intrastate

commerce, growth, and development ts 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-

governmental services sector. The manufacturing jobs

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

service sector jobs generate an estimated annual payroll of

$851 milion. Applying recognized economic modeling,°

these jobs result in an economic impact that includes over

138.000 indirect and induced jobs in the Commonwealth and

wdditional 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

F lhe 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 tmpact 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 tor 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 thesc

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 Ohio’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-respondents’ mere

allegations regarding the purpose and effect of Ohio's tax

credit, the Sixth Circuit summarily granted judgment to

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

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

two 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. ln

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)

recoznize, 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 is “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,

plaintifis-respondents challenged the Ohio statute on only

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

dispute that the tax provisions at issue have sufficient nexus

+: The Sixth Circuit has stayed’enforcement of its ruling and

injunction pending resolution of the parties” petitions for writs of

ccruiora sl.

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, “{a]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 Coniuiner 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 implicated

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

cerhorari 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 interstate 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 in 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.” Americun Trucking Ass'n, Inc. v. Scheiner,

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

467 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

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 effect 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 certioruri and reverse

the Sixth Circuit’s ruling on the constitutionality of Revised

Code § 5733.33.

Professor Enrich stated that citizens/taxpayers, such as the

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

any assured expansion of services that the elimination of the chalienged

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

Themselves: Commerce Clause Consiraints on State Tax Incentives for

Business,” 110 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

a

William 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

18

rea oe |

. | JUL20 5

© LOFFCE OF THe en

No. 04-1704 & 04-1724

In the

Supreme Court of the Anited States

DAIMLERCHRYSLER CORPORATION, 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 AMICUS CURIAE MICHIGAN

ECONOMIC DEVELOPMENT CORPORATION

nim IN SUPPORT OF PETITIONERS

DAIMLERCHRYSLER CORPORATION,

AND STATE OF OHIO

James R. LANCASTER, Jr.

Counsel of Record

SENIOR VICE PRESIDENT/GENERAL COUNSEL

MicHiGAN Economic DEVELOPMENT CORPORATION

300 NortH WASHINGTON SQUARE

LANSING, MI 48913

(517) 335-0236

SS

Becker Gallagher Legal Publishing, Inc., 800.890.5001

TABLE OF CONTENTS

TARE GE AUPTHEUUIED 6 ccc cece ccccees i

INTEREST OF AMICUS CURIAE ............. l

SUMMARY OF ARGUMENT ................ 2

Beemer Oe ARGIUUS CURBAL .. wo iw ccc cree cc eens 2

| PPE TTT LTT TTT ET ET TTT 2

I ee ee re Te oe ree he 3

I. The Cases Cited By The Sixth Circuit Court of

Appeals Do Not Support Its Conclusion. ..: 4

Il. The Sixth Circuit’s Reasoning Is Internally

Inconsistent And Contradictory ......... 6

Ill. Unless Overturned, This Decision is

Potentially Disruptive to Economic

Development Activity in the State of Michigan

il

TABLE OF AUTHORITIES

Cases

Boston Stock Exchange v. State Tax Commissioner,

a OE

Caterpillar, Inc. v. Department of Treasury,

440 Mich 400, 488 NW2d 182 (1992)......

Complete Auto Transit v. Brady,

SP aN BOP TEE hb 6 Fees Cee wows sviia

Cuno v. DaimlerChrysler, Inc.,

386 F.3d 738 (6" Cir. 2004) ............

Maryland v. Louisiana,

ee ee ae

Trinova Corporation v. Department of Treasury,

ne ree eee

Westinghouse Electric Corporation v. Tully,

466 U.S. 388 (1984) ......... rae h ea we

Statutes and Constitutional Provisions

eee: Ge; Ge Os a o's oe sees ce wee

Mich. Comp. Laws §§124.501 to 124.512 .....

Mich. Comp. Laws §§125.1601 to 125.1636... .

Ohio Rev. Code §5733.33(B) ..............

iti

Other Authorities

W. Hellerstein & D. Coenen, Commerce Clause Restraints

on State Business Development Incentives,

81 Cornell L. Rev. 789 (1996) ............ 6, 7

]

INTEREST OF AMICUS CURIAE'

Amicus Curiae Michigan Economic Development

Corporation (“MEDC”) is a public body corporate created

under section 28 of Article VII of the State of Michigan

Constitution of 1963, and the Urban Cooperation Act of 1967,

1967 PA 7, MCL 124.501 to 124.512, by contractual

interlocal agreement effective April 5, 1999 between local

participating economic development corporations formed

under the Economic Development Corporations Act, 1974 PA

338, MCL 125.1601 to 125.1636, and the Michigan Strategic

Fund, a state agency.

The MEDC’s interest in this case arises from the fact that

it administers most of the economic development programs of

the State of Michigan, including certain programs involving

tax credits, and is the principal governmental agency in

Michigan for promoting economic development. Because the

State of Michigan resides within the Sixth Circuit, the court

of appeals’ decision in this matter would serve as binding

precedent in federal courts in Michigan, and therefore may

affect Michigan laws involving economic development ~

matters.

' Pursuant to Rule 37.6 of the Rules of this Court, amicus curiae

state that no counsel for a party has written this brief in whole or

in part, and no person or entity, other than amicus, its members,

or their counsel, has a made a monetary contribution to the

preparation or submission of this brief. This brief is filed with the

consent of all parties, and copies of the consent letters have been

lodged with the Clerk of this Court.

2

SUMMARY OF ARGUMENT

The MEDC urges the Court to grant Petitioners’

DaimlerChrysler Corporation and State of Ohio (the

“Petitioners”) Petitions for a Writ of Certiorari and asserts

that the decision of the Sixth Circuit in this matter requires

immediate review for the following reasons:

1. It is not supported by the case law which it cites as its

supporting precedent; to the contrary, this decision is in fact

unprecedented and is counter to prior well established

precedents.

2. The decision is internally inconsistent and

contradictory because it upholds a property exemption on the

basis that it is “related to the use or location of the property

itself,” yet invalidates the Ohio investment tax credit, which

also meets this criteria.

3. The decision is inconsistent with prior U.S. Supreme

Court and other higher court opinions, upholding Michigan

tax laws that include similar, though not identical, tax credits

or deductions as being valid under the U.S. Commerce

Clause.

INTRODUCTION

The Michigan Economic Development Corporation

(“MEDC”) supports the Petitioners’ Petitions for a Writ of

Certiorari. The MEDC files this Amicus Curiae brief because

of its apprehension that the Sixth Circuit has embarked on a

radical departure from well settled precedents interpreting the

“Dormant” Commerce Clause doctrine as it applies to state

tax law. As previously acknowledged by the Plaintiffs, they

propose a “novel legal theory.” The MEDC strongly believes

3

that the Sixth Circuit’s acceptance (at least in part) of this

“novel legal theory” contradicts many well established

precedents, and must be reviewed and reversed, immediately.

ARGUMENT

This matter arises from the Sixth Circuit's decision filed

on September 2, 2004, and amended on October 19, 2004

where it invalidated an Ohio investment tax credit (“Ohio

ITC”) as violative of the Dormant Commerce Clause. The

Ohio ITC grants a credit against that state’s corporate

franchise tax for “purchases of new machinery and

equipment... provided. .[it is} installed in [Ohio}.” Ohio Rev.

Code §5733.33(B)(1).

The Sixth Circuit in this case concluded that the Ohio [TC

discriminates against interstate commerce by “coercing”

businesses already subject to its state franchise tax to expand

locally rather than out of state. Cuno v. DaimlerChrysler,

Inc., 386 F.3d 738, 746 (6 Cir. 2004). Furthermore, the

Sixth Circuit stated:

Moreover, as between two businesses, otherwise

similarly situated and each subject to Ohio taxation,

the business that chooses to expand its local presence

will enjoy a reduced tax burden, based directly on its

new in-state investment, while a competitor that

invests out-of-state will face a comparatively higher

tax burden because it will be ineligible for any credit

against its Ohio tax.

4

Id. at 743. The Sixth Circuit then concluded that the Ohio

ITC violated the third prong of the Complete Auto Transit’

test (i.e., that a tax must not discriminate against interstate

commerce). This conclusion is flawed and warrants

immediate review for several reasons.

I. The Cases Cited By The Sixth Circuit Do Not Support

Its Conclusion.

This case involves a tax incentive promoting purely in-

State activity. The reasoning in the three cases cited by the

Sixth Circuit are contrary to its conclusion. In Boston Stock

Exchange v. State Tax Commissioner, 429 U.S. 318 (1997),

Maryland v. Louisiana, 451 U.S. 725 (1981), and

Westinghouse Electric Corporation v. Tully, 466 U.S. 388

(1984), this Court addressed legal and factual issues differing

significantly from this case. Each of these decisions

addressed situations where states essentially imposed a higher

tax on some out-of-state good or service which had the effect

of giving preferential treatment to in-state businesses; none of

these situations, however, involved a tax credit aimed at

creating an incentive for in-state capital investment. In all

three of the cited decisions (Boston Stock Exchange,

Westinghouse, and Maryland) this Court struck down tax laws

that encouraged the development of local industry by

imposing higher transactional taxes on economic activities

occurring outside of the state than were imposed on similar in-

State activities. The net effect was a tax on the sale of

products or services in another state that was higher than on

? Complete Auto Transit, Inc. v. Brady, 430 US 274, 97 S.Ct.

1076, 51 L.Ed. 2d 326 (1977)

5

comparable in-state sales. This is clearly discriminatory.’ The

crucial distinction between the cases cited in the Sixth

Circuit’s decision and this case is that the Ohio ITC does not

tax any out-of-state sales. The Ohio ITC is a one-time

“optional” tax incentive that promotes only in-state/intrastate

investment. Sales of products or services are not taxed in

any way. The Ohio ITC does not give a competitive

advantage to in-state taxpayers like the statutes invalidated in

Boston Stock Exchange, Maryland and Westinghouse. \n fact,

the tax credit appears to be equally available to both in-state

and out-of-state businesses.

The Ohio ITC does not constitute the type of

discriminatory tax scheme typically held to violate the

Dormant Commerce Clause doctrine. The typical application

of this doctrine in the context of state tax law is to invalidate

discriminatory tax schemes that unduly burden interstate

commerce and give a competitive advantage to in-state

taxpayers, and disadvantage out of state taxpayers. However,

the Ohio ITC does not do this.

The Ohio ITC applies solely to in-state activity. This is

exactly the type of tax incentive that has been consistently

ruled valid by courts interpreting the dormant commerce

clause doctrine. The decision of the lower court must be

reconsidered for these reasons.

> The Petition for a Writ of Certiorari of DaimlerChrysler

Corporation, at pp. 19 - 21, succinctly spells out the distinction;

therefore, we rely upon that argument, and will not reiterate it

here.

6

II. The Sixth Circuit’s Reasoning Is Internally Inconsistent

And Contradictory

The Sixth Circuit upheld the validity of the personal

property tax exemption that was challenged in this case.

What is curious about this aspect of the opinion is that the

rationale used to uphold the property tax exemption actually

supports upholding the validity of the Ohio ITC, as well:

Although conditions imposed on property tax

exemptions may independently violate the commerce

clause, conditional exemptions raise no constitutional

property itself. Stated differently, an exemption may

be discriminatory if it requires a beneficiary to engage

in another form of business in order to receive the

benefit or is limited to businesses with a specified

prensa on 2 ee 451 US at 756-57

commerce, they are permissible.” (emphasis added).

Cuno, 386 F.3d at 746-47.‘

* The Sixth Circuit, while citing no direct judicial authority in

support for its determination of the validity of Ohio’s personal

property tax exemption, looked to Maryland v Louisiana, infra, as

showing an example of state action that was unconstitutional. As

the Court is undoubtedly aware, there is a substantial academic

debate ongoing as to the validity of tax incentives on Dormant

Commerce Clause grounds. One such article is authored by

Professors Hellerstein and Coenen, entitled “Commerce Clause

Restraints On State Business Development Incentives,” 81 Cornell

L. Rev. 789 (1996). This portion of the Sixth Circuit’s decision is

significamt because it appears to adopt the one *xception to what

7

In this case, the Ohio ITC invalidated by the Sixth Circuit is

obviously a tax that is “related to the use or location” of the

property itself. Though limited to businesses with a specified

economic presence within the state, it does not discriminate

against “out-of-state” businesses. Thus, the logic the court of

appeals used to uphold the property tax exemption appears to

support upholding the validity of the Ohio ITC, as well.

Furthermore, the Sixth Circuit admits that a similar

subsidy for economic dev lopment purposes would pass

constitutional muster. The purpose of the Dormant

Commerce Clause doctrine is not to exalt form over

substance. Rather, its purpose is to strike down substantial

and unjustified burdens on interstate commerce, and tax laws

that either facially or in actuality give preferred treatment to

specified local interest. The Ohio ITC does neither.

Ill. Unless Overturned, The Sixth Circuit’s Decision is

Potentially Disruptive to Economic Development

Activity in the State of Michigan.

Two prior court opinions, one by this Court in 1991, the

other by the Michigan Supreme Court in 1992 (for which

certiorari was denied), addressed the validity of Michigan’s

taxing scheme and a similar investment tax credit statute in

the face of a challenge on commerce clause grounds. If not

Professors Hellerstein and Coenen termed as their “in-state

favoritism/state-coercion” approach: the Commerce Clause is not

offended where a state invites a taxpayer or potential taxpayer to

invest so long as the tax burden is not increased for that taxpayer

should the invitation be declined. /d. at p.806 - 7.

8

reviewed, the holding in this case may call into question the

continuing validity of those decisions.

In Trinova Corporation v. the Department of Treasury,

498 U.S. 358 (1991), this Court addressed a challenge to

Michigan’s Single Business Tax (“SBT”). The plaintiff in

that case alleged that the Michigan SBT discriminated against

out-of-state businesses in violation of the commerce clause.

This Court flatly rejected this assertion. Subsequently, the

Michigan Supreme Court rejected a challenge on commerce

clause grounds to the validity of the capital acquisition

deduction (“CAD”) of the SBT, which is available only for

Capital investments related to Michigan business activities.

See Caterpillar, Inc. v. Department of Treasury, 440 Mich

400, 488 NW2d. 182 (1992); cert. den. 506 U.S. 1014

(1992). Therefore, since 1992 this tax preference for capital

investment in Michigan stood as established law, with the

apparent blessing of this Court, and has been relied upon by

thousands of businesses.

While there are many features of the Michigan SBT CAD

and other Michigan tax incentives that are distinguishable

from the Ohio ITC invalidated in this case, the Sixth Circuit's

decision raises great concern that it intends to embark on an

unprecedented change in commerce clause jurisprudence. It

appears that the Sixth Circuit is making a significant departure

from prior established commerce clause principles by

adopting what the Plaintiffs themselves, as well as

contemporary academic literature, acknowledge is novel legal

theory not directly supported by existing precedents. To

provide a measure of certainty, MEDC respectfully urges this

Court to review the Sixth Circuit's decision in this matter.