Monday, October 03, 2005

Supreme Court Watch - Cuno

Getting back to more serious news, the Supreme Court granted certiorari last week for a significant case coming out of the 6th Circuit Court of Appeals, which ruled that Ohio’s investment tax credit scheme was unconstitutional. This case, DaimlerChrysler Corporation v. Cuno, was brought by taxpayers to challenge tax incentives designed to keep a Chrysler plant in Toledo, Ohio. The case made its way to the Sixth Circuit last fall, which rocked the world a bit by reversing the court below on the constitutionality of these tax incentive provisions and finding them in violation of the Commerce Clause.

In these circumstances, the state government is granting a tax benefit to corporations who choose to make investments within the state. Those who don’t make such investments don’t get these benefits. The benefit is open to any investor, and in this sense it does not discriminate in favor of Ohio corporations or residents and against outsiders. However, if you are making a decision to invest, it does make it more attractive to invest in Ohio instead of out-of-state. This is what the Sixth Circuit found troubling.

If the Sixth Circuit’s approach is upheld, there is trouble for many states which have similar provisions. Some think these kinds of provisions are bad policy, as they end up benefiting large corporations. However, those kinds of decisions are best solved in the political branches. To the extent one does not have confidence in the legislature to solve these issues, then resort to the Court to “save the states from themselves” becomes the next best thing. I don’t think this Court will do that.

Moreover, it should be noted that in granting certiorari on this case, the Court also asked the parties to brief another issue: whether the original plaintiffs had standing to bring this action. The question of taxpayer standing may provide a route to deal with this decision without getting into the substance of the Commerce Clause issue. This will be an important case to watch.


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