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State Investment Tax Credits, the Commerce Clause, and Cuno v. DaimlerChrysler, Date July 1, 2005 1 (July 1, 2005)

handle is hein.tera/crstax0393 and id is 1 raw text is: Order Code RS22186 July 1, 2005 CRS Report for Congress Received through the CRS Web State Investment Tax Credits, the Commerce Clause, and Cuno v. DaimlerChtysler Erika Lunder Legislative Attorney American Law Division Summary Many states offer tax incentives to companies that invest or expand business operations in the state. In a 2004 decision, Cuno v. DaimlerChrysler, the U.S. Court of Appeals for the Sixth Circuit addressed the constitutionality of two such incentives. The court held that Ohio's investment tax credit violated the Commerce Clause of the U.S. Constitution, but that its property tax abatement scheme did not. Approximately 40 states have credits similar to the one struck down in Cuno. The Economic Development Act of 2005 (H.R. 2471 and S. 1066, 109th Congress) has been introduced to give states the authority to offer tax incentives like Ohio's investment tax credit. Like most states, Ohio provides various tax incentives to encourage businesses to locate or expand operations in the state. Two of its incentives, the investment tax credit and property tax abatement scheme, were the subject of a recent court case, Cuno v. DaimlerChrysler' Ohio's investment tax credit is a non-refundable credit against the state's corporate franchise tax. The credit may be claimed by a taxpayer who purchases new manufacturing machinery and equipment that is installed in Ohio.2 It is calculated using a formula that factors in the amount that the new property's costs exceed the average amount spent on new property in the county where the property is installed. Any unused credit may be carried forward for three years. Under Ohio's property tax abatement scheme, Ohio municipalities may offer an abatement to a business that agrees to establish, expand, renovate, or occupy a facility and hire new employees, or preserve employment opportunities for existing employees in economically depressed areas.' The exemption may be granted for up to ten years and for up to 75% of the property's assessed value. The 75% limit may be raised if the affected school districts agree. In 1998, DaimlerChrysler and the City of Toledo entered into an agreement under which the company would construct a new vehicle-assembly plant in exchange for a ' 386 F.3d 738 (6th Cir. 2004), rev 'g inpart and aff'g inpart 154 F. Supp. 2d 1196 (N.D. Ohio 2001), rehearing, en banc, denied by 2005 U.S. App. LEXIS 1750 (6th Cir. 2005). 2 Ohio Rev. Code Ann. § 5733.33. 'Ohio Rev. Code Ann. § 5709.62. Congressional Research Service o- The Library of Congress

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