State tax incentives are at risk after a decision by a US appeals court in September.

The court said an investment tax credit that Ohio offers businesses for investing in new manufacturing machinery and equipment in the state is unconstitutional.  The decision calls into question tax credits and similar benefits at the state level for wind farms, clean coal technology plants, and other power projects.  Ohio has asked the court for a rehearing, and a number of other states are expected to file briefs supporting Ohio’s position.

The court said that incentives aimed at getting businesses to relocate violate the commerce clause of the US constitution, which bars states from interfering with interstate commerce.

Daimler-Chrysler built a new automobile factory near its existing plant in Toledo, Ohio in 1998 at a cost of $1.2 billion.  It claimed a 13.5% investment tax credit against its state franchise taxes.  It also received a property tax exemption for 10 years from the two local school districts.  The tax benefits were worth $280 million.

A group of Toledo homeowners and small business people challenged the tax benefits at the urging of Ralph Nader.  The court suggested that direct subsidies like government grants are permitted under the US constitution, but tax credits are not because they involve a state’s use of its taxing power to redirect interstate commerce.  The court said the property tax exemption is not a problem.  The case is Cuno v. Daimler-Chrysler, Inc.  The court rendered its decision on September 2.

The Ohio attorney general asked the court on September 16 to reconsider its decision.  At least 12 other parties have filed briefs seeking to become parties in the case. 

Keith Martin