# Amicus Curiae Brief — DaimlerChrysler Corp. v. Cuno

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0106%3A24

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2006
- **Citation:** 546 U.S. 1163

## Text

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0106%3A24. Public record. Not legal advice.