In a ruling that may affect the future of state job creation strategies across the nation, the Supreme Court will rule on how states can use tax incentives to entice large concerns such as car companies to make capital investments.
The high court will review last year's appellate court decision in Cincinnati on a tax program in Ohio that was declared unconstitutional because it hindered interstate commerce.
The Sixth Circuit ruled that Ohio's investment tax credit discriminates against interstate commerce by granting preferential treatment to in-state investment and activity, in violation of the commerce clause of the Constitution.
In the ruling, the appeals court said that it was "legitimate for Ohio to structure its tax system to encourage intrastate economic activity," but maintained that the tax credit affected "free trade among the states."
Ohio taxpayers had posed a challenge to the law, filing suit over a tax credit the state gave DaimlerChrysler to erect a Jeep plant in Toledo four years ago.
In an amicus brief, the Council on State Taxation, the National Association of Manufacturers, and the U.S. Chamber of Commerce argued that tax incentives, such as the Ohio investment tax credit are an important feature of state taxation, operating as part of an overall tax structure to mitigate tax increases that often result from increased
in-state activity.
In a separate amicus brief, the Tax Foundation urged the Supreme Court to review the decision.
"This is good news for taxpayers and the states," said staff attorney Chris Atkins, co-author of the brief. "We hope the Supreme Court will bring some clarity to this area of the law and affirm the principle that states are free to develop their own business climates, so long as they do not discriminate against out-of-state taxpayers."
