Ohio Investment Tax Credit Ruled Unconstitutional By Appeals Court

by Mike Godfrey, Tax-News.com, Washington

06 September 2004

Ruling on Thursday, the 6th US Circuit Court of Appeals reversed a lower court ruling, announcing that an investment tax credit granted to DaimlerChrysler AG violated the US Constitution because it offered the firm preferential tax treatment to expand inside the state rather than elsewhere.

The case stemmed from complaints made by 12 Toledo taxpayers and three small businesses over the investment tax incentive paid by the Ohio authorities to the automobile manufacturer in order to encourage it to locate a SUV production plant in the state.

Writing on behalf of the three-judge appeals panel, Judge Martha Craig Daughtrey explained that the Constitution authorizes Congress to regulate commerce, and "implicitly limits the state's right to tax interstate commerce".

According to an Associated Press report, the appeals court ruling will directly affect the four states under the jurisdiction of the Circuit Court, namely Ohio, Kentucky, Michigan and Tennessee. However, if the decision is allowed to stand, it could affect similar investment tax credit arrangements in some 40 states.

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