Cuno argued before U.S. Supreme Court.

On March 1, 2006, the Supreme Court heard oral arguments in Cuno v. DaimlerChrysler, the case challenging Ohio's manufacturing investment tax credit, in which Tax Executives Institute filed a "friend of the court" brief. (TEI's brief was reprinted in the November-December 2005 issue of The Tax Executive. Gregory S. Matson, a member of TEI's legal staff, attended the oral argument and prepared the following report.

It is not usual for a tax case to be front page news in a national, general circulation newspaper. But there are several aspects of Cuno v. DaimlerChrysler that are far from usual (including the States' and multijurisdictional businesses' finding themselves on the same side). Hence, while unusual, it was not really a surprise that the tax case merited a cover story in the Money section of USA Today's March 1 edition--the morning the Supreme Court of the United States held oral argument in the case. For many, the newspaper's decision to publish a photograph of Charlotte Cuno--the named plaintiff in a case that has roiled the waters of state taxation by challenging the constitutionality of state tax incentives--put a face with the name that has become shorthand for the most important tax issue confronting the Supreme Court in recent years.

That the Cuno case was heard by the Supreme Court is itself unusual given the Court's seeming reluctance in recent years to accept state business tax cases. TEI was among many amici curiae that urged the Court to review the decision of the U.S. Court of Appeals for the Sixth Circuit striking down Ohio's investment tax credit as discriminatory in violation of the Commerce Clause. (TEI's brief in support of DaimlerChysler's petition appeared in the July-August 2005 issue of The Tax Executive.) The Court agreed to hear the case, and, in addition to the Commerce Clause issue, asked the parties to address the issue of "standing," which refers to the requirement that parties have a sufficient stake in the outcome (for example, sustained a sufficient injury) to justify their case being heard.

The March 1 oral argument focused primarily on the standing issue, an issue fully covered by TEI in its brief while other "friends of the court" eschewed the issue in the apparent hope that the Court might address the Commerce Clause issue if they ignored the standing prerequisite. In its brief, TEI pointed out the standing and Commerce Clause issues conflated in Cuno in that the taxpayer group challenging Ohio's tax credit could not demonstrate any actual harm--a prerequisite to prevailing on either issue.

The nine-member Court, led by new Chief Justice John Roberts, actively questioned both sides. The justices seemed openly skeptical of Cuno's standing to challenge the Ohio tax credit. While DaimlerChrysler conceded that the recognized standing of municipal taxpayers to sue local jurisdictions over tax matters existed in the case, it contended that such standing did not carry over to create standing to challenge to the state's tax credit. (Aside from the tax credit, a real property tax exemption granted DaimlerChrysler by the City of Toledo had also been challenged by Cuno; this incentive was sustained by the Sixth Circuit Court of Appeals. Cuno sought Supreme Court review of that decision, but their petition has not been granted or denied yet. It was in relation to the real property tax exemption issue that DaimlerChrysler conceded some merebers of the Cuno taxpayer group had standing at one time.) The questions telegraphed a general reluctance to "piggyback" or "tack" standing for challenging the tax credit onto whatever standing may have existed in respect of the real property tax exemption. Indeed, DaimlerChrysler's counsel--Theodore Olsen, who previously served as the U.S. Solicitor General--suggested that such a decision would be a radical departure from the Court's standing jurisprudence and result in an "explosion of standing."

Counsel for Cuno (Professor Peter Enrich, who participated in TEI's 2005 Annual Conference) attempted to parry the position advanced by DaimlerChrysler (and the justices themselves), arguing that the Court could find some ancillary standing related to municipal taxpayer standing in the case that would permit the Court to reach the merits of the case. Indeed, he almost seemed to be pressing an equitable argument, reminding the Court that Cuno had not filed its case in federal court (where standing was an issue), but rather in Ohio state court. It was DaimlerChrysler that "removed" the case to federal court. The Court, however, appeared unconvinced, not only over the standing issue but also on Cuno's Commerce Clause challenge. Several justices, for example, voiced difficulty finding any discriminatory harm from a state tax credit equally available to in-state or out-of-state businesses.

While it is difficult to predict the outcome of a case based on the oral argument, the tenor and direction of the questions during the oral argument strongly suggest that the case will be decided on the basis of standing. The Supreme Court's decision is anticipated by the end of June.