WASHINGTON – The Supreme Court grappled Wednesday with whether taxpayers can challenge lucrative tax breaks their elected officials give to businesses as incentives to expand or move operations into certain cities or states.
The high court's decision in the case brought by DaimlerChrysler Corp. could have a significant impact nationally because nearly every state uses billions of dollars in tax breaks to attract companies.
Chief Justice John Roberts seemed to be seeking a way to allow a lawsuit to proceed in federal court by taxpayers whose homes or businesses were taken by the city of Toledo to make way for a $1.2 billion Jeep assembly plant.
Other members of the high court, including Justices Antonin Scalia and David Souter, were skeptical about taxpayers' claims that Ohio's investment tax credit discriminates against Ohio companies that do business outside the state.
If a company decides not to take advantage of the credit and expands elsewhere, Souter said, "That's not discrimination. That's a free choice."
DaimlerChrysler is asking the justices to overturn a ruling by the 6th U.S. Circuit Court of Appeals two years ago that struck down Ohio's tax credit on new equipment, saying the practice hinders interstate commerce because the incentives are available only to businesses that invest in Ohio.
At issue is whether the taxpayers who lost their homes and businesses have a right to bring a lawsuit and, if so, whether Ohio's investment tax credit is constitutional.
To make way for the plant, the city took by eminent domain and leveled about 80 homes and 16 businesses. The city and two local school districts also gave the company a 10-year exemption from property taxes, and the company received additional investment tax credits against the state's corporate franchise tax.
In all, DaimlerChrysler received nearly $300 million in property and investment tax benefits.
Scalia said such tax giveaways to businesses often are controversial in states. But resolving the dispute is best left to "the political arena," he said. "Let the people fight it out. Why should that be an issue that the court should decide?"
Attorney Theodore Olson, who represents DaimlerChrysler, said Ohio's investment tax credit is available to all companies, located inside or outside of the state. "It stimulates rather than impedes commerce," he said.
Business groups and lawmakers in several states said in friend-of-the-court filings that a ruling against Ohio and DaimlerChrysler would hurt economic development throughout the nation and put U.S. manufacturing at a disadvantage against foreign competitors.
"Investment tax credits help states keep their economies afloat," Ohio's Solicitor General, Douglas Cole, told the justices.
The cases are DaimlerChrysler Corp. v. Cuno, 04-1704, and Wilkins v. Cuno, 04-1724.