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Charlotte Cuno, et al., Plaintiffs-Appellants v. DaimlerChrysler Corp., et al., Defendants-Appellees: on appeal from the United States District Court for the Northern District of Ohio: brief of Tax Executives Institute, Inc. as Amicus Curiae in support of Defendants-Appellees' petition for rehearing with suggestion for rehearing en banc.

On September 23, 2004, TEI filed the following brief amicus curiae with the U.S. Court of Appeals for the Sixth Circuit in Charlotte Cuno, et al. v. DaimlerChrysler Corp., et al. TEI asked the court to reconsider the three-judge panel decision. which struck down Ohio's investment tax credit program as unconstitutional. The letter was prepared under the aegis of the Institute's State & Local Tax Committee, whose chair is Janet M. Wilson of Halliburton Company.

Identity and Interest of Amicus Curiae

Pursuant to Rule 29 of the Rules of the United States Court of Appeals for the Sixth Circuit, Tax Executives Institute, Inc. respectfully submits this brief as amicus curiae to urge the Court to grant the Petition for Rehearing with Suggestion for Rehearing En Banc of the Defendents-Appellees. (1) Attorneys for the Plaintiff-Appellants and Defendants-Appellees have consented to the filing of this brief. Because the panel's ruling invalidating Ohio's investment tax credit program on constitutional grounds will have substantial repercussions in the Sixth Circuit and across the country, it should be reconsidered by the panel or addressed by the Court sitting en banc.

Tax Executives Institute, Inc. ("TEI" or "the Institute") is a voluntary, nonprofit association of corporate and other business executives, managers, and administrators who are responsible for the tax affairs of their employers. The Institute was organized in 1944 under the laws of the State of New York and is exempt from taxation under section 501(c)(6) of the Internal Revenue Code (26 U.S.C.). TEI has approximately 5,400 members who represent more than 2,800 of the leading corporations in the United States, Canada, and Europe. The Institute is dedicated to promoting the uniform and equitable enforcement of the tax laws, to reducing the costs and burdens of administration and compliance to the benefit of both government and taxpayers, and to vindicating the Commerce Clause and other constitutional rights of all business taxpayers within a tax system that facilitates economic growth. The members of the Institute represent a cross-section of the business community, whose employers are, almost without exception, engaged in interstate commerce.

The panel's determination that Ohio's investment tax credit unconstitutionally discriminates against interstate commerce by imposing a lesser tax burden on companies making in-state investments in capital equipment compared with companies making similar investments outside Ohio represents a serious misapplication of the Commerce Clause. Thus, it has ramifications not only for the remaining states within the Sixth Circuit, but for every state that has enacted similar tax incentives. Unless vacated, the decision could upset the settled expectations of companies that have invested in new plants and equipment in Ohio to secure the promised investment tax credits, and ultimately deprive states of an important and widely accepted mechanism for encouraging job-creating investments. As individuals who must contend daily with the administration and interpretation of tax laws across the nation, the Institute's members have a vital interest in the proper disposition of this case.

Statement of the Case

This case deals with a credit against Ohio's corporate franchise tax for taxpayers who increase annual in-state investment in new manufacturing machinery and equipment. Under applicable Ohio statutes, (2) DaimlerChrysler Corporation entered into an agreement with the City of Toledo, Toledo-area school districts, and the State of Ohio to receive significant tax incentives (namely, investment tax credits and real property tax exemptions) for expanding its existing Jeep plant in Toledo.

Several Ohio and Michigan taxpayers sought declaratory and injunctive relief on grounds the enabling statutes are unconstitutional. (3) Specifically, the Plaintiffs argued that the preferential treatment afforded to in-state investment under Ohio law discriminates against interstate commerce and hence violates the Commerce Clause of the U.S. Constitution. (4) The district court dismissed the complaint for failure to state a claim upon which relief may be granted. On September 2, 2004, this Court reversed that decision in respect of the investment tax credit, concluding that it violates the Commerce Clause. At the same time, the Court found that Ohio's property tax incentive did not violate the Commerce Clause.


The panel's ruling that Ohio's investment tax credit program violates the U.S. Constitution's Commerce Clause threatens to upend state tax incentive programs across the country and wreak havoc on the settled expectations of taxpayers and states. The ruling should be reconsidered by the panel or addressed by the Court en banc and reversed. Investment tax credits, along with a panoply of other tax incentives, have been widely used by the states to encourage growth in economically distressed areas, spur investment, increase jobs, and hence, even enlarge the tax base. Left intact, the panel's determination will reverberate both in the Sixth Circuit and across the country to the detriment of taxpayers and states alike. States will be denied the ability to manage their economies and taxpayers will be deprived of the certainty they need to plan and conduct their business affairs.

Under the so-called dormant Commerce Clause, discriminatory state taxing schemes will be struck down as unconstitutional. (5) This does not mean that all tax incentives are constitutionally suspect. Thus, although the Supreme Court of the United States has invalidated certain state tax incentives, it has continually affirmed the ability of the states to foster economic growth within their borders: "[The Commerce Clause] does not prevent the States from structuring their tax systems to encourage the growth and development of intrastate commerce and industry." Boston Stock Exch., 429 U.S. at 336. "[W]e do not hold that a State may not compete with other States for a share of interstate commerce; such competition lies at the heart of a free trade policy." Westinghouse Elec. Corp., 466 U.S. at 407 n.12. "[A] State may enact laws pursuant to its police powers that have the purpose and effect of encouraging domestic industry." Bacchus Imports, 468 U.S. at 271. "The Commerce Clause does not prohibit all state action designed to give its residents an advantage in the marketplace." New Energy Co., 486 U.S. at 278.

Amicus TEI respectfully submits the Court's opinion misconstrues the applicable Commerce Clause jurisprudence. Where both in-state and out-of-state companies are eligible to receive investment tax credits, as in this case, the Commerce Clause should not operate to prevent states from providing such incentives. In other words, tax incentives are permissible so long as they do not penalize out-of-state activity. Any Ohio taxpayer--including nonresident companies willing to initiate economic activity within the state--may avail themselves of the opportunity and benefit afforded by the Ohio investment credit. This is the very essence of the free-trade and open competition that the Commerce Clause protects.

Should the result in this case remain unchanged, the existing boundary markers on which states relied in promoting economic growth through tax incentives will be obliterated. Likewise, taxpayers who acted in reliance on the states' actions will be severely disadvantaged.


For the foregoing reasons, amicus Tax Executives Institute, Inc. respectfully urges the Court to grant the Defendants-Appellees' Petition for Rehearing with Suggestion for Rehearing En Banc.

No counsel for a party has written this brief in whole or in part and no person or entity, other than amicus, its members, or its counsel, has a made a monetary contribution to the preparation or submission of this brief.

(1) No counsel for a party has written this brief in whole or in part and no person or entity, other than amicus, its members, or its counsel, has a made a monetary contribution to the preparation or submission of this brief.

(2) OHIO REV. CODE [double section] 5709.62, 5709.631, and 5733.33.

(3) The case was originally brought in Lucas County, Ohio Common Pleas Court and was subsequently removed to United States District Court for the Northern District of Ohio.

(4) Art. I, [section] 8, cl. 3.

(5) Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318 (1977); Westinghouse Elec. Corp. v. Tully, 466 U.S. 388 (1984); Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984); and New Energy Co. v. Limbach, 486 U.S. 269 (1988).
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Publication:Tax Executive
Date:Sep 1, 2004
Previous Article:TEI testimony on pre-budget consultations before House of Commons Standing Committee on Finance: September 10, 2004.
Next Article:Amicus curiae letter in General Motors Corp. v. Franchise Tax Board: August 31, 2004.

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