Amicus Curiae Brief — DaimlerChrysler Corp. v. Cuno

7

development without discriminating against the products of,

or business operations conducted in, other States.

The court of appeals misapplied the relevant precedents of

this Court. The decisions of this Court on which the court

below sought to rely each concern “location incentives”

under which the challenged state tax scheme attempted to

benefit particular local business activity by imposing

additional tax burdens if the activity was conducted out-of-

state. By contrast, under the Ohio investment tax credit

provision, while local activity is benefited, no additional tax

burden is imposed if the targeted activity is undertaken

elsewhere. There is no aspect of the Ohio investment tax

credit that discriminates against interstate commerce, and the

state tax provision therefore does not violate the dormant

Commerce Clause.

| ARGUMENT

I. RESPONDENTS LACK STANDING.

1. Background of the Standing Issue.

Article III of the Constitution limits the judicial power to

the resolution of “cases” and “controversies.” “The judicial

power of the United States defined by Art. III is not an

unconditioned authority to determine the constitutionality of

legislative or executive acts.” Valley Forge Christian

College v. Americans United For Separation of Church and

State, Inc., 454 U.S. 464, 471 (1982). “[A]t an irreducible

minimum, Art. III requires the party who invokes the court’s

authority to ‘show that he personally has suffered some actual

or threatened injury as a result of the putatively illegal

conduct of the defendant’ * * * and that the injury ‘fairly can

be traced to the challenged action’ and ‘is likely to be

redressed by a favorable decision’ * * * .” /d. at 472

(citations omitted). The constitutional content of the

“standing” doctrine limits the federal judicial power “to those

disputes which confine federal courts to a role consistent with

a system of separated powers and which are traditionally

thought to be capable of resolution through the judicial

process.” Flast v. Cohen, 392 U.S. 83, 97 (1968). Vigilant

enforcement of the standing requirement “forecloses the

conversion of courts of the United States into judicial

versions of college debating forums.” Valley Forge, 454 U.S.

at 473.

The Court has summarized the three constitutional

elements of the standing requirement as follows. The

plaintiff must show that:

(1) it has suffered an “injury in fact” that is (a)

concrete and particularized and (b) actual or

imminent, not conjectural or hypothetical; (2) the

injury is fairly traceable to the challenged action of

the defendant; and (3) it is likely, as opposed to

merely speculative, that the injury will be redressed

by a favorable decision.

Friends of the Earth, Inc. v. Laidlaw Environmental Services

(TOC), Inc., 528 U.S. 167, 180-181 (2000). See also

Whitmore v. Arkansas, 495 U.S. 149, 155 (1990).

The Court has had several occasions to apply these

Standing requirements to actions brought by taxpayers to

challenge the constitutionality of state and federal tax

legislation. In the early case of Frothingham v. Mellon, 262

U.S. 447 (1923), the Court held that “a taxpayer of the United

States” lacks standing to challenge the constitutionality of a

federal appropriation because his interest as a taxpayer “in the

moneys of the treasury” was “shared with millions of others,”

was “comparatively minute and indeterminable,” and the

9

effect of the requested injunction “upon future taxation [would

be] remote fluctuating and uncertain.” /d. at 487. The Court

concluded in Frothingham that a federal taxpayer lacks

standing to bring a challenge to a federal revenue provision

when his allegation of injury is “merely that he suffers in

some indefinite way in common with people generally.” Jd. at

488.

That same standing rule was held to apply to suits brought

by state taxpayers who challenge the constitutionality of state

tax and spending provisions in Doremus v. Board of

Education, 342 U.S. 429 (1952). The Court held that state

taxpayers, like federal taxpayers, have an interest that is “too

indeterminable, remote, uncertain and indirect” to provide

standing to challenge the constitutionality of state revenue

measures. /d. at 433-434. To bring such a case, the plaintiff

must show that he has suffered a “direct dollars-and-cents

injury” in “a good-faith pocketbook action.” /d. at 434. There

must be a “special injury” apart from the general allegation

that the plaintiff is a “taxpayer” to satisfy that standard. Jbid.

>In reaching the conclusion that the interest of federal taxpayers in

the federal fisc is insufficient to establish standing to challenge

federal revenue measures, the Court pointed out that a different

rule had been applied for “resident taxpayers” who brought an

action against a “municipal corporation,” on the theory that “[t}he

interest of a taxpayer of a municipality in the application of its

moneys is direct and immediate and the remedy by injunction to

prevent their misuse is not inappropriate.” Frothingham v. Mellon,

262 U.S. at 486. The Court explained that the different rule for

municipal taxpayers was “based upon the peculiar relation of the

corporate taxpayer to the [municipal] corporation, which is not

without some resemblance to that subsisting between stockholder

and private corporation.” /d. at 487. See also Doremus v. Board of

Education, 342 U.S. 429, 434 (1952).

10

The decisions rejecting “taxpayer standing” were revisited

by the Court in Flast v. Cohen, 392 U.S. at 91-94, and in the

Valley Forge case, 454 U.S. at 477-478. In Flast, the Court

concluded that a taxpayer, acting as a taxpayer and not

claiming any direct injury to any other interest, would “be a

proper party to allege the unconstitutionality only of exercises

of congressional power under the taxing and spending clause

of Art. I, § 8 of the Constitution” and, in doing so, must claim

that “the challenged enactment exceeds specific constitutional

limitations imposed upon the exercise of the congressional

taxing and spending power and not simply that the enactment

is generally beyond the powers delegated to Congress.” 392

U.S. at 102-103.

The Flast test was criticized by commentators and has been

“sharply limited” by subsequent decisions of the Court.

Fallon, Meltzer, Shapiro, Hart & Wechsler’s The Federal

Courts and The Federal System 128-129, 161 (5 ed. 2003).

In particular, in the Valley Forge case, the Court endorsed the

validity of the general rule that denies standing for federal and

state taxpayers, acting as taxpayers, in challenging federal and

state revenue measures. 454 U.S. at 477-478. The Court

stated that the “Flast exception to the Frothingham principle”

was to be applied narrowly and with “rigor.” /d. at 481 (citing

United States v. Richardson, 418 U.S. 166 (1974), and

Schlesinger v. Reservists Committee to Stop the War, 418 U.S.

208 (1974)).

Under Valley Forge, an allegation of taxpayer injury that is

not based on a specific constitutional limitation on the taxing

power and that is instead predicated on the desire, “possessed

by every citizen, to require that the Government be

administered according to law,” is not sufficient to establish

standing. 454 U.S. at 482-483. The Court emphasized that

general allegations of “taxpayer standing” are insufficient, for

“[sJuch claims amount to little more than attempts ‘to employ

11

a federal court as a forum in which to air . . . generalized

grievances about the conduct of government.” Jd. at 483

(quoting Flast v. Cohen, 392 U.S. at 106).

1. The Nature of Respondents’ Claims of Standing.

In an effort to establish their standing to challenge the Ohio

investment tax credit in this case, respondents have segregated

- themselves into three separate categories:

(i) the “Ohio Plaintiffs” who base their standing on the

claim that they are residents and taxpayers in Ohio who

“are injured by this [state tax credit] scheme in that the

subsidy depletes the funds of the State of Ohio to which the

plaintiffs contribute through their tax payments”

(Complaint ¥ 40);

(ii) the “Michigan Plaintiffs” who base their standing on

the claim that they are residents of Michigan who could

have benefited from the “economic opportunities, in the

form of jobs and/or certain tax revenues to the benefit of

certain local governments and the State of Michigan, from

which the Michigan Plaintiffs would have benefited,” if

“the facilities had instead been located in Michigan”

(Complaint ¥ 24); and

(iii) a single plaintiff named “Kim’s Auto and Truck

Service, Inc.,” which alleged that its business location was

being condemned by the city of Toledo because it was

within the area being redeveloped by DaimlerChrysler and

that. “[w]ithout the aforesaid tax exemption, the

[DaimlerChrysler] plant would not have been expanded”

(Complaint ¥ 23).

For the reasons that follow, none of these parties satisfies the

constitutional requirement for standing to challenge the state

12

investment tax credit in this case. The courts below therefore

lacked jurisdiction over that issue in this case.‘

3. The Constitutional Requirements For Standing Are Not

Met In This Case.

a. The “Ohio Plaintiffs” Lack Standing. The first group of

respondents base their individual claims of standing solely on

their status as residents and taxpayers in Ohio. That claim of

' standing is barred by Doremus, in which this Court held that

the limitations on federal taxpayer standing established in the

Frothingham case apply “equally * * * when a state Act is

assailed.” 342 U.S. at 433-434. Accord, Valley Forge, 454

U.S. at 478. Unless the taxpayer has himself paid the tax and

is bringing an action for a refund, or unless some independent

injury has been caused by the statute that makes the plaintiff's

action a “good-faith pocket book action,” there is no standing

for a taxpayer, acting solely in his capacity as a taxpayer, to

challenge the constitutionality of the state tax. Doremus v.

Board of Education, 342 U.S. at 431, 434-435 (no standing

when the plaintiff premises his claim of standing on the fact

he “is ‘a citizen and taxpayer’ [and] the only interest he

asserts is just that”).

In the present case, the only injury claimed by the Ohio

Plaintiffs is that the investment tax credit “depletes the funds

of the State of Ohio to which the plaintiffs contribute through

their tax payments.” Complaint ¥ 40. That claimed injury

plainly does not suffice. Addressing that exact claim in

* These petitions do not present the question whether any of the

respondents has standing to challenge the municipal property tax

exemption, which is the subject of respondents’ pending petition

for a writ of certiorari in Cuno v. DaimlerChrysler Corp., No. 04-

1407. See note 3, supra.

13

Doremus, the Court stated that it is “too indeterminable,

remote, uncertain and indirect” to suffice for standing. 342

U.S. at 433-434. That generalized grievance is not a “special

injury” to a “direct and particular financial interest” of the

plaintiffs. Jd. at 434-435. Instead, it :s merely an allegation

of a remote and unspecific harm suffered “in some indefinite

way in common with people generally.” Frothingham v.

Mellon, 262 U.S. at 488. See Doremus v. Board of

Education, 342 U.S. at 434. It therefore does not suffice to

establish standing in this case. Ibid. Accord, Coyne v. The

American Tobacco Co., 183 F.3d 488, 494 (6" Cir. 1999) (a

claim of “taxpayer” standing does not allege “an injury that is

distinct from the injury shared by all Ohio taxpayers” and is

“therefore insufficient to establish an injury in fact’”)); 13

Wright, Miller & Cooper, Federal Practice and Procedure §

3531.10, at 656-657 (2d ed. 1984) ((“[a]ny general argument

that the plaintiff is injured because his own tax liability is

increased by favorable treatment extended to another

taxpayer seems doomed to fail’).

The opinion of Justice Kennedy in ASARCO Inc. v.

Kadish, 490 U.S. 605 (1989), summarizes these established

principles and notes that “[t]he question whether taxpayers or

citizens have a sufficient personal stake to challenge laws of

general application where their own injury is not distinct

from that suffered in general by other taxpayers or citizens

covers old and familiar ground.” /d. at 613.° The general

* While the brief concurring opinion of Justice Brennan in

ASARCO, 490 U.S. at 633, expressed direct disagreement with the

conclusion that a teachers’ association lacked standing in that case,

it did not state specific disagreement with the separate conclusion

that the state taxpayers lacked standing. The concurring opinion

stated that it was unnecessary to reach the standing issue in

ASARCO in any event because federal standing principles did not

govern the underlying state court action in that case. See ibid.

14

rule for federal taxpayers is that such suits are not cognizable

“because a taxpayer’s ‘interest in the moneys of the Treasury

* * * is shared with millions of others, is comparatively

minute and indeterminable.’” /bid. (quoting Frothingham v.

Mellon, 262 U.S. at 487). And, the Court has “likened state

taxpayers to federal taxpayers, and thus [has] refused to

confer standing upon a state taxpayer absent a showing of

‘direct injury,” pecuniary or otherwise.” 490 U.S. at 613-614

(quoting Doremus v. Board of Education, 342 U.S. at 434).°

Under these established principles, state taxpayers cannot

rely on their status as taxpayers alone but must allege

“special circumstances or exceptions that would confer

standing upon them.” 490 U.S. at 614. State taxpayers lack

standing, when, as here, they merely allege that the state law

they oppose could result “in unnecessarily higher taxes” for

them and do not advance any claim upon which they could

recover “any direct pecuniary relief from the lawsuit.” /bid.

b. The “Michigan Plaintiffs” Lack Standing. The

“Michigan Plaintiffs” are residents and taxpayers of Michigan

who claim that they are injured by the Ohio investment tax

credit on the theory that DaimlerChrysler was induced by the

credit “to continue to operate its plants in Toledo, rather than

at an alternative site which, upon information and belief, was

to be located within the State of Michigan.” Complaint fj 3,

42. They broadly assert that, if the plant had been located in

Michigan instead of expanded in Ohio, there would have been

® In pointing out that the same standing rule applies to federal and

state taxpayers, Justice Kennedy noted in ASARCO that “[w)e have

indicated that the same conclusion may not hold for municipal

taxpayers, if it has been shown that the ‘peculiar relation of the

corporate taxpayer to the [municipal] corporation’ makes the

taxpayer's interest in the application of municipal revenues ‘direct

and immediate."” 490 U.S. at 613 (quoting Frothingham v.

Mellon, 262 U.S. at 486-487). See notes 3 & 4, supra.

15

“economic opportunities, in the form of jobs and/or certain tax

revenues to the benefit of certain local governments and the —

State of Michigan, from which the Michigan Plaintiffs would

have benefited.” /d. 4 42.

To the extent that the Michigan Plaintiffs assert standing

based on the alleged indirect consequences of the Ohio tax

credit on their Michigan tax burden, their allegations are

obviously even more attenuated than those of the Ohio

Plaintiffs and fail to satisfy the constitutional prerequisites for

standing. It is well established that such generalized

“taxpayer” allegations are insufficient to establish standing,

for there is no “special circumstance” that would create

anything other than a “fluctuating and uncertain” possibility

that taxpayers will receive any direct pecuniary relief from the

lawsuit. Frothingham v. Mellon, 262 U.S. at 487; ASARCO

Inc. v. Kadish, 490 U.S. at 615. The alleged injury is too

“remote” and “speculative” to establish standing. It is a

prototypical “generalized grievance,” which is shared by all

citizens alike, and which this Court has “consistently held [is]

not cognizable in the federal courts.” /Jbid. (citing, e.g., Los

Angeles v. Lyons, 461 U.S. 95, 111-112 (1983); Valley Forge,

454 U.S. at 482-487).

The broad allegation of the Michigan Plaintiffs that, if the

credits had not been allowed by Ohio, the plant might have

instead been relocated to Michigan, is also insufficient to

establish the “direct and personal” injury that is required to

support standing. The broad suggestion that additional jobs

might be created in Michigan if the DaimlerChrysler plant

were relocated there is a generalized, rather than a personal,

claim and is too “remote or speculative” to establish standing

in this case. In particular, there is no allegation that any of

the Michigan Plaintiffs “personally has suffered some actual

or threatened injury” from the renovation of the Jeep plant in

Toledo or from any feature of the challenged Ohio tax credit

16

provision. Coyne v. The American Tobacco Co., 183 F.3d at

494 (quoting Valley Forge, 454 U.S. at 472). The desire of

the Michigan Plaintiffs for job growth in the local economy

is simply one of “the kind of generalized grievances brought

by concerned citizens that we have consistently held are not

cognizable in the federal courts.” ASARCO Inc. v. Kadish,

— 490 US. at 616 (citing, e.g., Valley Forge, 454 U.S. at 482-

487).

Moreover, even if such generalized allegations were

otherwise sufficient, they would fail under a wholly separate

and different branch of the standing doctrine. This Court’s

cases have made clear that a plaintiff's injury must not only

(i) be direct and (ii) be caused by the challenged state statute,

but (iii) the plaintiff must also show that a favorable court

decision would “redress” the claimed injury. E.g., Whitmore

v. Arkansas, 495 U.S. 149, 155 (1990); Simon v. Eastern

Kentucky Welfare Rights Org., 426 U.S. 26, 38, 41 (1976).

As this Court summarized this rule in the Valley Forge case,

for standing to exist, the “distinct and palpable injury”

claimed by the defendant must be “likely to be redressed if

the requested relief is granted.” 454 U.S. at 475 (quoting

Gladstone Realtors v. Village of Bellwood, 441 U.S. 91, 100

(1979)). See Warth v. Seldin, 422 U.S. 490, 501 (1975).

Unless it is “likely, as opposed to merely speculative, that the

injury [asserted by the plaintiff] will be redressed by a

favorable decision,” there is no standing to adjudicate the

plaintiff's claims. Friends of the Earth, Inc. v. Laidlaw

Environmental Services (TOC), Inc., 528 U.S. at 181.

The injury alleged by the Michigan Plaintiffs would be

“redressed” only by an order that caused relocation of the

DaimlerChrysler plant in Toledo to Michigan. Nothing in the

Complaint, however, seeks or could possibly result in that

relief. In particular, there is no allegation in the Complaint

that an injunction entered against the Ohio tax credit

17

provisions would stop or reverse the improvements at the Jeep

plant in Toledo and cause the relocation of the plant to

Michigan. Nor could such an allegation have been made in

good faith. The improvements at the Toledo facility had long

been in progress and, even on the date of the filing of the

Complaint, were substantially implemented. By the time that

the Complaint was filed (March 29, 2000), the Jeep plant

expansion Development Agreement had been in place for

almost a year and a half. Complaint | 18. See also page 18,

infra. \n view of the substantial progress of the Jeep

expansion project, it was not possible for plaintiffs to contend,

in good faith, that an injunction entered against the tax credits

would cause the removal of that facility from Toledo.

Presumably for this very reason, the Complaint contains no

such allegation.

Instead, the Complaint alleges only in the past tense that, in

the absence of the challenged Ohio tax benefits, “the Stickney

Avenue Jeep plant would not have been expanded.”

Complaint § 23 (emphasis added). Because the complaint

acknowledges that the plant already had “been expanded,” it is

evident that the injury claimed by the “Michigan Plaintiffs” is

not “likely to be redressed if the requested relief is granted.”

Valley Forge, 454 U.S. at 475. The disallowance of the

agreed-upon tax benefits plainly would not result in the

demolition of the improvements at the Jeep plant and in its

relocation to Michigan.

It is a settled rule that a plaintiff lacks standing — and the

court therefore lacks jurisdiction — when, as here, the

“complaint suggests no likelihood that victory in this suit

would result” in redress of the asserted injury. Coyne v. The

American Tobacco Co., 183 F.3d at 496. Accord, Valley

Forge, 454 U.S. at 472. Because there is no “substantial

likelihood” that the relief requested by the Michigan Plaintiffs

will redress the injury they claim (Duke Power Co. v.

18

Carolina Environmental Study Group, 438 U.S. 59, 75 n.20

(1978)), they lack standing to challenge the Ohio tax in this

case.

c. No Other Plaintiff Has Standing. The only other

plaintiff that claims to possess standing to challenge the Ohio

tax credit provision is “Kim’s Auto and Truck Service, Inc.,”

whose property in Toledo was “slated to be condemned” as

part of the Jeep plant project. Complaint J 23. The Complaint

asserts, again in the past tense, that, “[w]Jithout the aforesaid

tax exemption, the Stickney Avenue Jeep plant would not

have been expanded, causing Kim’s Auto to be slated for

displacement.” /bid. (emphasis added). The remedy sought in

the complaint is not an injunction against the completion of

the Jeep plant, and no basis for any such injunction is offered.

Instead, the complaint seeks only to enjoin Ohio from

providing, and DaimlerChrysler from receiving, the Ohio tax

credit for the improvements made to that plant.

These allegations are insufficient to support standing. The

Complaint lacks any allegation that could support a

conclusion that an injunction entered against operation of the

Ohio tax credit provision would cause the ongoing

improvements at the Toledo Jeep facility to cease or be

reversed. And, for the reasons we have just described, no

such allegation could have been made in good faith either at

the time the Complaint was filed or currently. Indeed, in

related pleadings filed in this Court, Kim’s Auto has now

expressly admitted that “the new Jeep factory [in Toledo] was ©

built and opened in 2001” and has been producing vehicles at

that location since that time. Kim's Auto & Truck Service,

Inc. v. City of Toledo, Pet. No. 03-1629 at 4, cert. denied, 125

S.Ct. 2988 (2005); see also id. at 5 (“[t}he new Jeep plant

19

opened in 2000”).’ There is thus no plausible basis for any

contention that an injunction against the Ohio tax credit

would remedy the claimed injury of either the Michigan

Plaintiffs or of Kim’s Auto by causing the relocation of a

facility that was evidently completed even before the

complaint in this case was filed.

Respondents thus plainly fail to allege an injury that would

be redressed by the relief sought. Because there is no

“substantial likelihood” that the relief requested by Kim’s

Auto would redress the injury they claim (Duke Power Co. v.

Carolina Environmental Study Group, 438 U.S. at 75 n.20)),

respondents lack standing to challenge the Ohio investment

tax credit.®

” A decree of condemnation of the Kim’s Auto property was

entered by the state court in May 2002. The award of

compensation for that condemnation became final when the

petition for a writ of certiorari from the compensation award was

denied by this Court in June 2005. Pet. 03-1629 at 3.

8 In district court, respondents claimed that they have standing to

proceed with their claims in state court, and they requested a

remand for that purpose. There is good reason to question whether

Ohio decisions would provide a basis for “taxpayer standing” in the

context of this case. See Jn ex rel Snyder v. State Controlling

Board, 11 Ohio App. 3d 270, 273, 464 N.E. 2d 617, 621 (1983)

(“the plaintiff, as a general taxpayer, must show the action

complained of has affected the plaintiff's pecuniary interests

differently than the interests of the general taxpaying public”). If,

however, the case were to proceed on remand in the Ohio courts,

and if a final decision adverse to DaimlerChrysler were issued in

those courts on the merits, that decision would then be reviewable

in this Court on a petition for a writ of certiorari. See ASARCO

Inc. v. Kadish, 490 U.S. at 619.

20

Il. OHIO’S INVESTMENT TAX CREDIT DOES

NOT VIOLATE THE DORMANT COMMERCE

CLAUSE.

1. J/ntroduction.

If the Court reaches the merits of this case, it will be

considering the constitutionality of a classic State business tax

incentive — a pure dollar-for-dollar reduction in tax liability

for qualified new investment. The Ohio investment tax credit

was offered to any entity choosing to increase its investment

in machinery and equipment within the State. The tax credit

was available not only to Ohio taxpayers such as petitioner,

but also to any out-of-state taxpayer wishing to make a new

investment in Ohio. In petitioner’s case, the new investment

was made through an expansion of its existing Jeep facility in

Toledo.

The question here presented is whether it is constitutionally

permissible for a State to compete for business by offering a

straight-forward reduction in tax liability to any taxpayer

making the requisite new investment. Amici believe the

answer is clearly yes, because such an incentive does not

discriminate against interstate commerce and does not suffer

any other possible constitutional flaws.

In Boston Stock Exchange v. State Tax Commission, 429

U.S. 318 (1977), this Court set forth certain fundamental

principles that establish the framework within which a State

may shape its policy toward business taxation.

Our decision today does not prevent the States from

structuring their tax systems to encourage the growth

and development of intrastate commerce and industry.

Nor do we hold that a State may not compete with

other States for a share of interstate commerce; such

21

competition lies at the heart of a free trade policy. We

hold only that in the process of competition no State

may discriminatorily tax the products manufactured or

the business operations performed in any other State.

429 U.S. at 336-337. In other words, a State is free to use its

tax system not only to encourage the growth of local business,

but also to compete for its share of interstate business. The

only relevant limitation is that, in so competing, the State may

not structure its tax system in a way that imposes a

discriminatory tax burden on out-of-state business activity.

Consistent with the foregoing ground rules, a State is

clearly free to adopt a low-tax regime as a means of attracting

new business. This Court so stated in West Lynn Creamery,

Inc. v. Healy, 512 U.S. 186, 199 n.15 (1994): “In addition, it

is undisputed that States may try to attract business by

creating an environment conducive to economic activity, as by

maintaining good roads, sound public education, or low

taxes.”

l. The Ohio Investment Tax Credit Satisfies This

Court's Requirements for Constitutionality.

The investment tax credit offered by Ohio serves as an

inducement to all taxpayers to make new business investment

in Ohio. It is effectively a subset of a general low-tax regime

because it reduces the amount of franchise tax to be paid by

any taxpayer that makes a qualified new investment in the

State.

In amici’s view, the Ohio tax credit is designed in the

precise manner contemplated by this Court. It offers a

reduction in the State franchise tax without imposing any

additional tax burden on those taxpayers that choose to make

their new investment elsewhere. The Ohio scheme is

22

constitutionally permissible because, in the words of this

Court, it imposes no tax on “the products manufactured or the

business operations performed in any other State.” Boston

Stock Exchange, 429 U.S. at 337.

In analyzing the validity of the Ohio tax credit, the court of

appeals below acknowledged the fundamental principles

established in Boston Stock Exchange regarding a State’s

ability to compete for interstate business. Pet. App. 4a-Sa. It

also acknowledged that the Ohio investment tax credit was

equally available to in-state and out-of-state businesses. Pet.

App. 6a. Nevertheless, it concluded that the tax credit was

unconstitutional.

The court of appeals reached its conclusion by fully

embracing respondents’ argument that the Ohio tax credit had

the effect of “coercing” in-state taxpayers to make their new

investments in Ohio at the expense of development in other

States. Pet. Anp. 6a. Under the argument espoused by

respondents, the decision of an Ohio taxpayer to make a new

investment elsewhere would increase the taxpayer’s overall

tax cost in Ohio. This economic pressure, the argument runs,

would influence the taxpayer to invest in Ohio, thereby

“hinder[ing] free trade among the states.” Pet. App. 9a.” In

adopting respondents’ argument, the court of appeals basically

accepted the notion that, by providing a tax benefit to those

who made new in-state investments, the Ohio taxing scheme

inevitably imposed an impermissible burden on those making

out-of-state investments. Pet. App. 9a-10a.

. Respondents do not assert, nor could they, that the Ohio taxing

scheme somehow “coerces” out-of-state taxpayers to invest in Ohio

rather than elsewhere. Ohio’s scheme does not have cognizable

impact on an out-of-state taxpayer until it chooses to enter the

State.

23

The court’s benefit-burden dichotomy reflects a misreading

of this Court’s decision in Bacchus Imports, Ltd. v. Dias, 468

U.S. 263 (1984). Bacchus was a case involving pure

“economic protectionism.” The State of Hawaii had argued

that an exemption accorded certain locally produced

beverages from its excise tax on liquor sold at wholesale was

permissible because it was intended to benefit a fledging

industry and not to discriminate against out-of-state producers.

This Court rejected the argument, stating (id. at 273):

Virtually every discriminatory statute allocates

benefits or burdens unequally; each can be viewed as

conferring a benefit on one party and a detriment on

the other, in either an absolute or relative sense. The

determination of constitutionality does not depend

upon whether one focuses upon the benefited or the

burdened party.

Contrary to the notion advanced by the court of appeals in

the instant case, however, this Court did not say in Bacchus

that every taxing scheme benefiting in-state business activity

inevitably imposes an impermissible tax burden on out-of-

state activity. Only a “discriminatory statute” produces that

result. The reference of the court below to the Bacchus

discussion of benefits and burdens merely begs the question

here presented, which is whether the Ohio tax credit provision

is a “discriminatory statute” in the first instance.

As noted, what the court below considered to be the

discriminatory burden imposed by Ohio was the “coercion” of

in-state taxpayers to make their new investments within the

State in order not to lose the benefit of the Ohio tax credit. In

other words, the availability of the credit effectively pressured

in-state taxpayers to invest their next dollars in Ohio because,

in an economic sense, they could not afford not to take

advantage of the tax benefit provided.

24

This reasoning finds no support in the case law and is

completely misguided. The only direct consequence of an

Ohio taxpayer choosing to invest out-of-state is simply that it

would forego the Ohio credit. There would be no additional

tax burden or tax cost imposed by the taxing State, which (as

we discuss further below) is the touchstone for determining

unconstitutionality in a case such as this. Moreover, if the

taxpayer elects to invest in another State, it would then be able

to benefit from any investment tax credit or other tax benefit

available in that other jurisdiction. There is plainly no

economic “coercion” in such an arrangement. No case

decided by this Court has ever suggested that a tax incentive

of the type offered by Ohio is discriminatory merely because

those taxpayers who choose to invest elsewhere must

necessarily forego its benefit.

2. The Court of Appeals Misapplied the Relevant

Precedents of This Court.

The court of appeals relied primarily on three decisions of

this Court to support its conclusion that the Ohio investment

tax credit was unconstitutional. All three cases involved

situations where a taxpayer had the choice between carrying

on certain targeted activity entirely within the taxing State, or

partly within and partly without the taxing State. In each

case, some form of tax incentive was offered to encourage the

taxpayer to act entirely within the State. In each case, this

Court struck down the taxing scheme because the State had

impermissibly discriminated against interstate commerce by

imposing a higher tax on the taxpayer’s activity conducted in-

state if it chose to conduct a portion of the targeted activity

out-of-state.

Thus, in Boston Stock Exchange, supra, persons selling

stock that would be transferred through a New York transfer

agent paid a higher New York transfer tax if they sold their

25

shares on an out-of-state exchange than if the sale took place

on a New York-based exchange. The higher tax imposed by

New York when such sales were made out-of-state

constituted “both an advantage for the exchanges in New

York and a discriminatory burden on commerce to its sister

States.” 429 U.S. at 331.

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

(1984), a subsidiary of Westinghouse that was engaged in the

export business shipped its products from New York and

elsewhere. Its income was consolidated with that of its

parent, apportioned to the State, and subjected to the State’s

franchise tax.'° A tax credit was allowed for exports

attributable to New York. Calculation of the credit Was based

in part on the ratio of the subsidiary’s New York exports to

its total exports. If the subsidiary increased its out-of-state

exports relative to its New York exports, its credit would be

proportionately reduced and its New York franchise tax

would be correspondingly increased, even though its export

income subject to tax in New York remained the same. This

Court concluded that the New York credit impermissibly

discriminated against interstate commerce by penalizing the

taxpayer for export activity outside the State.

The final case relied on below was Maryland v. Louisiana,

451 U.S. 725 (1981). That case involved Louisiana’s

imposition of a “first use” tax on natural gas that had not been

subjected to tax by another jurisdiction. The tax was aimed

primarily at gas that was brought onshore from the Outer

'© New York utilized the standard three-factor State apportionment

formula, under which the ratio of a taxpayer’s property, payroll and

sales within the State to its total property, payroll and sales

determined the percentage of its taxable income properly

apportionable to, and taxable by, New York. N.Y. Tax Law 210.3

(McKinney Supp. 1983-1984).

26

Continental Shelf (OCS) and piped to processing plants in

Louisiana. Although the tax was imposed on the owner of

the gas, it was required to be passed on to the ultimate

consumer. Because of numerous exemptions and credits

allowed for local use and consumption, the tax was actually

borne only by out-of-state consumers who purchased gas

from within the State. The Louisiana scheme was struck

down because it favored local consumption and discriminated

against interstate commerce.

As noted, all three of the foregoing cases involved

situations where the taxing State overreached by increasing

the tax on in-state activity if the taxpayer undertook to

conduct some portion of its activity out-of-state. In each

case, this Court determined that the taxing scheme imposed —

an impermissible burden on interstate commerce. Here, by

contrast, the Ohio taxpayer that decides to spread its business

investment into another State does not suffer a higher tax on

its Ohio activities as a result. It is simply unable to claim an

Ohio tax credit for its out-of-state investment.

Both respondents and the court below highlighted one

aspect of the taxing scheme considered in Maryland yv.

Louisiana, namely, the allowance of a severance tax credit

arguably designed to encourage in-state gas production. In

addition to the first use tax imposed on OCS gas brought

‘onshore, Louisiana imposed an equivalent severance tax on

gas extracted from within the State. A credit against the

severance tax was allowed for any first use tax paid. Thus,

only those taxpayers producing in both locations could obtain

the benefit of the credit. This Court found the severance tax

credit to be an objectionable aspect of the Louisiana taxing

scheme (451 U.S. at 756-757):

On its face, this credit favors those who both own

OCS gas and engage in Louisiana production. The

27

obvious economic effect of this Severance Tax Credit

is to encourage natural gas owners involved in the

production of OCS gas to invest in mineral

exploration and development within Louisiana rather

than to invest in further OCS development or in

production in other States.

The court below viewed this Court’s discussion of the

severance tax credit as support for respondents’ contention

here that the “economic effect” of the Ohio investment tax

credit was “to encourage further investment in-state at the

expense of development in other States.” Pet. App. 9a.

The court below misunderstood this Court’s analysis.

Economic pressure was imposed by the severance tax credit

because any new gas brought into the State from new

investment offshore was necessarily subject to the first use

tax. If produced in-state rather than offshore, however, this

new gas would bear no tax because of the way the credit

worked. This Court saw tle credit as unacceptably coercive

as to offshore producers because it eliminated an otherwise

certain tax.

In this case, respondents and the court below have

suggested that the Ohio scheme puts a similar economic

pressure on in-state taxpayers to make their new investments

within the State rather than elsewhere. They claim that those

investing in-state will enjoy “a reduced tax burden,” while in-

state competitors investing their next dollars out-of-state will

“face a comparatively higher tax burden.” Pet. App. 6a. But,

neither respondents nor the court below assert here that the

“comparatively higher tax burden” for those investing out-of-

State is a certainty, or that it could be completely avoided by

investing in-state. The reason why they make no such

assertions is clear.

28

All other things being equal, an Ohio taxpayer making its

next machinery and equipment investment out-of-state rathe:

than in-state would not face an increased Vhio franchise tax

bill. Indeed, such a taxpayer almost certainly would find that,

even without the benefit of the investment tax credit, it would

actually have reduced its Ohio tax liability by investing out-

of-state. That is because any new out-of-state investment

would have increased the denominator, but not the numerator,

of the property factor (and perhaps also the payroll and sales

factors) used in its Ohio apportionment formula.'' An

increase in the denominator(s), but not the numerator(s), of

the taxpayer’s apportionment factor(s) would necessarily

cause less of its total income to be apportioned to Ohio and

therefore /ess Ohio tax to be paid. '”

Conversely, if the taxpayer had increased its in-state

investment, the result would have been an equal increase in

both the numerator(s) and the denominator(s) of the

taxpayer’s Ohio apportionment factor(s), thereby causing

more of its total income to be apportioned to Ohio. That, in

turn, could potentially produce a higher Ohio franchise tax

liability, even after allowance for the investment tax credit to

which the taxpayer would have been entitled in such a case.

In this situation, the tax credit can be seen for what it is,

namely, a partial offset to what could otherwise be an

increase in Ohio franchise tax as a result of the new in-state

investment.

'! For franchise tax purposes, Ohio uses the standard three-factor

apportionment formula described in note 9, supra. Ohio Rev. Code

_§ 5733.05(B).

'2 As noted in Kraft General Foods v. Iowa Dept. of Revenue and

Finance, 505 U.S. 71, 80-81 (1992), it is appropriate to take the

State’s entire taxing scheme into account in considering a claim of

discrimination.

29

In short, the situation presented here is the exact opposite

of the situation this Court found objectionable in Maryland v.

Louisiana. There is absolutely no assurance that the decision

by an Ohio taxpayer to forego the benefit of the Ohio tax

credit by making new investment out-of-state would result in

an increase in the taxpayer’s Ohio tax liability. In fact, the

actual result of such an investment decision would ordinarily

be to reduce its Ohio tax liability, not increase it.

All three of this Court’s decisions that were primarily

relied on by the court below involved, in one form or another,

what the court of appeals referred to as “location incentives.”

Pet. App. 10a. In each case, the State’s taxing scheme sought

to influence a location decision by benefiting particular

business activity if conducted locally and imposing an

additional tax burden on the taxpayer if the same activity

were conducted out-of-state. In each case, this Court struck

down the taxing scheme in question.

The Ohio tax credit is also a location incentive. But under

Ohio’s tax regime, while local activity is benefited, there is

no additional tax burden imposed if the targeted activity is

undertaken elsewhere.

Nothing in the dormant Commerce Clause justifies treating

a state tax incentive as unconstitutionally discriminatory

when, as here, taking advantage of the incentive actually has

the potential for increasing state taxes (by increasing the

amount of income to be apportioned to Ohio) and the only

consequence of locating the investment elsewhere is

foregoing the opportunity to claim the Ohio tax credit. Yet,

that is precisely the holding of the court below.

There is no aspect of the Ohio investment tax credit that

discriminates against interstate commerce. There is no

limitation on the class of taxpayers entitled to claim the

30

credit. There is no burden imposed by Ohio on those

taxpayers, whether in-state or out-of-state, that choose not to

take advantage of the credit. As this Court declared 119

years ago, the dormant Commerce Clause has application in a

case such as this only if the taxing scheme in question has

imposed “a regulation in restraint of commerce among the

states.” Walling v. Michigan, 116 U.S. 446, 455 (1886).

There is no such “restraint of commerce” inherent in the Ohio

taxing scheme and therefore no basis for declaring the Ohio

investment tax credit unconstitutional.

CONCLUSION

For the foregoing reasons, the decision of the court of

appeals holding the Ohio investment tax credit invalid under

the Commerce Clause should be vacated and dismissed for

lack of jurisdiction or, in the alternative, should be reversed.

Respectfully submitted.

JEROME B. LIBIN

DAVID G. LEITCH Counsel of Record

Senior Vice President & KENT L. JONES

General Counsel KENDALL L. HOUGHTON

FORD MOTOR COMPANY JEFFREY A. FRIEDMAN

SUTHERLAND ASBILL &

THOMAS A. GOTTSCHALK BRENNAN LLP

Executive Vice President 1275 Pennsylvania Ave., N.W.

& General Counsel Washington, D.C. 20004

GENERAL Motors Corp. (202) 383-0100

Counsel for Amici Curiae

DECEMBER 2005

22

No. 04-1724

IN THE

Supreme Court of the United

WILLIAM W. WILKINS,

Tax Commissioner for the State of Ohio, et al.,

Petitioners,

v.

CHARLOTTE CUNO, et al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

BRIEF OF THE NATIONAL GOVERNORS

ASSOCIATION, NATIONAL LEAGUE OF CITIES,

INTERNATIONAL MUNICIPAL LAWYERS

ASSOCIATION, COUNCIL OF STATE

GOVERNMENTS, NATIONAL ASSOCIATION OF

COUNTIES, NATIONAL CONFERENCE OF STATE

LEGISLATURES, U.S. CONFERENCE OF MAYORS,

GOVERNMENT FINANCE OFFICERS

ASSOCIATION, AND INTERNATIONAL

CITY/COUNTY MANAGEMENT ASSOCIATION AS_ |

AMICI CURIAE SUPPORTING PETITIONERS

RICHARD RUDA *

Chief Counsel

JAMES I. CROWLEY

STATE AND LOCAL LEGAL CENTER

444 North Capitol Street, N.W.

Suite 309

Washington, D.C. 20001

(202) 434-4850

* Counsel of Record for the

Amici Curiae

WILSON-EPES PRINTING Co.,INC. — (202) 789-0096 - WASHINGTON, D. C. 20001

QUESTION PRESENTED

Amici will address the following question:

Whether Ohio’s Investment Tax Credit, which encourages

economic development by providing a credit to taxpayers

who install new manufacturing machinery and equipment in

the State, violates the Commerce Clause.

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TABLE OF CONTENTS

Page

QUBS TION PRESENTED... .ecceresecccescsscoscvsevccccevssorsceees i

TABLE OF AUTHORITIES. .....cc.sccccroccccsessecscsesesccseneess iv

INTEREST OF THE AMICI CURIAE ..........cccc0s0see0e0 l

SUMMARY OF ARGUMENT ...............cccecsesseeseseeeeeees

IES srctnistccnintenictsnnetivnseriianinanmatinninmncnste 4

OHIO’S INVESTMENT TAX CREDIT DOES

NOT VIOLATE THE DORMANT COM-

SORA GRIT obvtessiisnenoapripstonnieuisntowstoeiubsecsndnine 4

A. Ohio’s ITC Does Not Violate the Dormant

Commerce Clause’s Core Purpose of Pro-

hibiting States From Protecting In-State

Interests From Out-of-State Competitors .... 6

B. The Ohio ITC’s Likely Practical Effect Is

To Facilitate Interstate Commerce .............. 10

Te ne Ee 21

(iii)

iv

TABLE OF AUTHORITIES:

Cases Page

ASARCO Inc. v. Idaho State Tax Comm’n, 458

ULE, SUF (RGR ecccsscctccnsentiniintesnenititietestenadanni 18

Boston Stock Exchange v. State Tax Comm'n,

GID US. FEB CITED terrimcsinisstnsnivniinvninnenniinaa passim

Camps Newfound/Owatonna, Inc. v. Town of

Harrison, 520 U.S. 564 (1997)........... 10, 12, 12-13, 13

Complete Auto Transit, Inc. v. Brady, 430 U.S.

SPO CITT FP xcccccevncsersiieensinesintinniataigiiiasalemiaiall 8, 18

Container Corp. of America v. Franchise Tax

BE, , GES UB. USD CIS GE) cecccevceseescrevscmnevsinstiie 18

Dean Milk Co. v. Madison, 340 U.S. 349 (1951).. 6

General Motors Corp. v. Tracy, 519 U.S. 278

(BET Po .csesescsseccccesssesstibeetiintetatinensenaniianimnstiaaaials 12

Heart of Atlanta Motel, Inc. v. United States, 379

CAS. DOG CRG .ecasccsnsevcnticevecenicsnsniinisenasitnasainds 9

Lochner v. New York, 198 U.S. 45 (1905)............. 17

Maryland v. Louisiana, 451. U.S. 725 (1981).....14, 14-15

New Energy Co. of Indiana v. Limbach, 486 U.S.

BED CODED cercecsesecsserenisncittietniincienininaiinsel 6, 9, 10

Northwestern States Portland Cement Co. v.

Minnesota, 358 U.S. 450 (1959)........cccccceeeeeeee 6

Tyler Pipe Indus. v. Washington State Dep't of

Raw., GS UZ. TSB CRGSE) erccicscnsernesishsorecavitiniss 3, 10

Westinghouse Electric Corp. v. T: uly, 466 US.

Fe Ce ccseisrcccrevsinnapeinstantiniaicansacsialiaviiiiiiies passim

West Lynn Creamery, Inc. v. Healy, $12 U.S. 186

CFIID a. .sccssccesscosscessentionasseoestahennasenensipisiimnaiaaniaal passim

Statutes

Ohio Rev. Code Ann. § 5733.33 ......ccc.ccccssseeseeeees 8

§ 5733.33( AO) ...cecccececeees 7

§ 5733.33(B)(1)....cceereeeees 7

v

TABLE OF AUTHORITIES—Continued

Other Authorities Page

DaimlerChrysler AG, Memorandum and Articles

of Incorporation (June 2005)..........ccccereeecerereees 8

Robert J. Firestone, State Investment Tax Credits

Do Not Violate the Dormant Commerce

Clause, 36 State Tax Notes 189 (2005).............. 10-11

Ohio Dep’t of Taxation, Annual Report 2004

INTEREST OF THE AMICI CURIAE

Amici are organizations whose members include stafe,

county and municipal governments and officials throughout

the United States.' Promoting economic development and

creating jobs are fundamental concerns of amici and their

members. Investment tax credits are a vital tool for achieving

these objectives. Amici thus have a compelling interest in the

legal issue presented by this case: whether Ohio’s Investment

Tax Credit (ITC), which is equally available to in-state and

out-of-state firms, violates the dormant Commerce Clause.

The court of appeals held that Ohio’s ITC violates the

Commerce Clause because the credit is available only to an

Ohio franchise taxpayer that invests in the State. This

holding jeopardizes investment tax credits in other States

in the Sixth Circuit and casts doubt on the constitutionality

of numerous other state investment tax credits throughout

the nation.

The court of appeals clearly erred in holding that Ohio’s

ITC violates the Commerce Clause. Beyond that, the court’s

holding ignores that the States compete against foreign

countries for investment and that this competition will likely

intensify with increasing globalization. It thus threatens each -

State’s ability to compete for investment internationally as

well as nationally.

Because of the importance of this issue to amici and their

members, this brief is submitted to assist the Court in its

resolution of the case.

' The parties have consented to the filing of briefs amicus curiae and

have filed blanket consent letters with the Clerk of the Court. This brief

was not authored in whole or in part by counsel for a party, and no person

or entity other than amici or their members has made a monetary

contribution to the preparation or submission of this brief.

2

SUMMARY OF ARGUMENT

1. The Court has long held that the Commerce Clause

limits the power of the States to enact laws that discriminate

against interstate commerce. The purpose of the dormant

Commerce Clause is to prohibit economic protectionism—

that is, benefiting in-state economic interests by burdening

out-of-state competitors. Thus, a State may not “impose a tax -

which discriminates against interstate commerce .. . by

providing a direct commercial advantage to local business.”

Westinghouse Elec. Corp. v. Tully, 466 U.S. 388, 403 (1984)

(internal quotations & citation omitted).

Ohio’s Investment Tax Credit (ITC) does not violate the

dormant Commerce Clause. As the statute makes plain, the

ITC is available to all corporations doing business in Ohio

that are subject to the State’s franchise tax, without regard to

whether they are domestic or foreign firms. Moreover, the

ITC does not discriminate by favoring other Ohio economic

interests such as suppliers or employees.

The Ohio law does not condition the ITC’s availability on

the taxpayer’s agreeing to purchase the qualifying machinery

and equipment from Ohio firms. Rather, a firm is free to

purchase the equipment that constitutes its investment from

whatever manufacturer it chooses, wherever the manufacturer

is located. Nor does the ITC discriminate in favor of Ohio

residents in employment. It does not require that the taxpayer

hire Ohio residents or give them a hiring preference to qual-

ify for the credit. Indeed, it is likely that some employees

who work at DaimlerChrysler’s Toledo plant commute from

neighboring States, and others have moved to Ohio to take

advantage of new job opportunities at the plant.

2. “The paradigmatic example of a law discriminating

against interstate commerce is the protective tariff or customs

duty, which taxes goods imported from other States, but does

not tax similar products produced in State.” West Lynn

\ 3

Creamery, Inc. v. Healy, 512 U.S. 186, 193 (1994). State

laws which act as export tariffs also violate the Commerce

Clause. See, e.g., Tyler Pipe Indus. v. Washington State

Dep't of Rev., 483 U.S. 232, 248 (1987).

The Ohio ITC is not a tariff nor its functional equivalent.

The ITC neither increases the costs of goods and services sold

by out-of-state firms to Ohio residents nor increases the costs

of goods and services sold by Ohio firms to out-of-state

residents. The ITC thus does not impose a discrimina-

tory burden on interstate commerce. Quite the opposite, the

ITC likely functions in a manner that promotes interstate

commerce.

The ITC encourages a firm to acquire manufacturing

equipment, wherever made, by providing what is in effect

up to a 13.5% discount on the price of new equipment. Thus,

the ITC may subsidize the purchase of goods made in other

States and thereby promote interstate commerce.

The ITC may-also function as an export subsidy by

lowering DaimlerChrysler’s costs of manufacturing vehicles

at its Toledo plant. Competition in the market for similar

vehicles may force DaimlerChrysler to reduce its prices for

these vehicles, which are sold in other States. Moreover,

Ohio has not conditioned the ITC’s availability on Daimler-

Chrysler’s agreement to sell some or all of its vehicles to

Ohio residents. Thus, in contrast to a discriminatory tax on

out-of-state consumers, the Ohio ITC may well be sub-

sidizing vehicle purchases made by non-Ohio consumers of

DaimlerChrysler’s products.

The Ohio ITC’s likely practical effects on interstate com-

merce are thus far different from those of measures that the

Court has invalidated. The ITC does not discriminatorily tax

goods or services produced in other States. Nor does it result

in the State imposing higher taxes on goods made or services

performed in Ohio and marketed to non-Ohio residents.

4

3. Nor is there any merit to the court of appeals’ con-

clusion that the ITC discriminates against interstate com-

merce because “the business that chooses to expand its [Ohio]

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.” Pet.

App. 6a. Contrary to the views of the court of appeals, the

two firms are not “similarly situated” once they make their

investments. /d.

The firm that invests in Ohio necessarily increases the

amount of its Ohio property and payroll, thereby increasing

the amount of its net income apportionable to Ohio and -

raising its Ohio franchise tax liability. In contrast, the firm

that invests in another State typically decreases its property

and payroll factors thus decreasing its Ohio franchise tax

liability by reducing the amount of its net income appor-

tionable to Ohio. Because the act of investing changes the tax

base of each firm, they are not similarly situated, and no

claim of discrimination is sustainable. The judgment of the

court of appeals should therefore be reversed.

ARGUMENT

OHIO’S INVESTMENT TAX CREDIT DOES

NOT VIOLATE THE DORMANT COMMERCE

CLAUSE

The court of appeals erred in holding that Ohio’s Invest-

ment Tax Credit (ITC) violates the dormant Commerce

Clause because it discriminates against interstate commerce.

The court acknowledged that “the investment tax credit . . . is

equally available to in-state and out-of-state businesses.” Pet.

App. 6a. The court, however, failed to conduct the requisite

“sensitive, case-by-case analysis of [the credit’s] purposes

and effects” before it concluded that “the provision ‘will in its

practical operation work discrimination against interstate

5

commerce.’” Jd. at Sa (quoting West Lynn Creamery, Inc. v.

Healy, 512 U.S. 186, 201 (1994)).

The court apparently accepted respondents’ argument that

the tax credit discriminates against interstate commerce

because it “coerc[es] businesses already subject to the Ohio

franchise tax to expand locally rather than out-of-state.” Jd. at

6a. The court observed that this was so because a taxpayer

“can reduce its existing tax liability by locating significant

new machinery and equipment within the state, but it will

receive no such reduction in tax liability if it locates a

comparable plant and equipment elsewhere.” /d.

The court also appears to have accepted respondents’

contention that the credit discriminates against interstate

commerce because “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.” /d. According

to respondents (and apparently the court below), “the eco-

nomic effect of the Ohio investment tax credit is to encourage

further investment in-state at the expense of development in

other states and . . . the result is to hinder free trade among

the states.” Jd. at 9a (citation omitted). Relatedly, the court

rejected the State’s argument that tax incentives “are per-

missible as long as they do not penalize out-of-state economic

activity.” Id.

As explained below, this Court’s cases do not support

invalidation of Ohio’s ITC, which is available to all Ohio

franchise taxpayers without regard to whether they are in-

state or out-of-state businesses. Nor does the credit dis-

criminate against interstate commerce because it is unavail-

able to Ohio taxpayers who choose to invest outside of the

State. While the credit is intended to promote economic

6

development within Ohio, it neither functions as a tariff nor

coerces businesses to invest in the State. The judgment of the

court of appeals should therefore be reversed.

A. Ohio’s ITC Does Not Violate the Dormant

Commerce Clause’s Core Purpose of Prohib-

iting States From Protecting In-State Interests

From Out-of-State Competitors.

The Court has long recognized “that the Commerce Clause

not only grants Congress the authority to regulate commerce

among the States, but also directly limits the power of the

States to discriminate against interstate commerce.” New

Energy Co. of Indiana v. Limbach, 486 U.S. 269, 273 (1988)

(citations omitted). This “‘negative’ aspect of the Commerce

Clause prohibits economic protectionism—that is, regulatory

measures designed to benefit in-state economic interests by

burdening out-of-state competitors.” Jd. (citations omitted).

It is thus fundamental that “[n]Jo State, consistent with the

Commerce Clause, may ‘impose a tax which discriminates

against interstate commerce . . . by providing a direct com-

mercial advantage to local business.’” Westinghouse Elec.

Corp. v. Tully, 466 U.S. 388, 403 (1984) (quoting Boston

Stock Exchange v. State Tax Comm'n, 429 U.S. 318, 329

(1977) (quoting Northwestern States Portland Cement Co. v.

Minnesota, 358 U.S. 450, 458 (1959))). This “prohibition . . .

follows inexorably from the basic purpose of the Clause.”

Boston Stock Exchange, 429 US. at 329. As the Court has

explained, “[pjermitting the individual States to enact laws

that favor local enterprises at the expense of out-of-state

businesses ‘would invite a multiplication of preferential trade

areas destructive’ of the free trade which the Clause protects.”

Id. (quoting Dean Milk Co. v. Madison, 340 U.S. 349, 356

(1951)) (emphasis added).

The Court has also recognized, however, “that States may

try to attract business by creating an environment conducive