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Defending Tax Competition in the U.S. Supreme Court: DaimlerChrysler Corp. v. Charlotte Cuno, et al.

4 min readBy: Chris Atkins, Kyle O. Sollie

Download Cert Petition Brief of Amicus Curiae In Support of Petition for Certiorari?DaimlerChrysler Corp. v. Charlotte Cuno et. al.Download Merits Brief of Amicus Curiae In Support of Petitioners?DaimlerChrysler Corp. v. Charlotte Cuno et. al.

U.S. Supreme Court Nos. 04-1704 & 04-1724
Amicus Curiae Brief In Support of Petition for Certiorari
Filed July 15, 2005
Certiorari Granted September 17, 2005

Amicus Curiae Brief In Support of Petitioners
Filed November 14, 2005
Argued March 1, 2006
Decided May 15, 2006

The TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation filed two amicus briefs with the U.S. Supreme Court in the DaimlerChrysler Corp. v. Cuno case, appealing a lower court ruling which invalidated an Ohio tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. for business investment on grounds that it is legally flawed and threatens state tax competition.

The Supreme Court accepted the case and ruled that the respondents lacked standing to bring the suit, paralleling an argument presented in the Tax Foundation’s friend-of-the-court brief. The problematic ruling of the lower court was thus vacated.

“Handing out tax incentives to lure companies may be poor tax policy, but the lower court Cuno ruling imperils all forms of state tax competition, not just tax incentives,” said Staff Attorney Chris Atkins, co-author of the brief.

The investment tax credit in the Cuno case gives a corporation a tax credit against its Ohio corporate franchise tax liability in exchange for the purchase and installation of machinery at an Ohio production facility. The Sixth Circuit Court of Appeals ruled the credit illegally discriminated against interstate commerce in September 2004-a ruling the Tax Foundation’s brief argues is overly broad and threatens to make both good and bad forms of tax competition illegal.

“The Commerce Clause of the Constitution was designed to encourage competition, including tax competition, between the states,” said Atkins. “It was not designed to broadly suppress competition for jobs and investment, which is what the lower court ruling threatened to do.”

The Sixth Circuit’s decision represented a significant departure from precedent. In previous rulings the Court has held that the Commerce Clause “does not prevent States from structuring their tax systems to encourage the growth and development of intrastate commerce and industry.” The Court has also held that it is a “laudatory goal in the design of a tax system to promote investment that will provide jobs and prosperity to the citizens of the taxing State”-something the Cuno decision threatened to make illegal in states within the Sixth Circuit, including Kentucky, Michigan, Ohio, and Tennessee.

“The Ohio taxpayers who brought this suit have turned the Commerce Clause on its head,” said Atkins. “They’re using it to shield themselves from tax competition, which is the opposite of the Clause’s intent.”

While Cuno was aimed at eliminating preferential tax credits, it also threatened to make sound tax changes illegal. For example, under the broad ruling of Cuno a state that reduced tax rates or eliminated a tax would run afoul of the law, since it might encourage companies to relocate to the low-tax jurisdiction from another state.

“Cuno’s sweeping interpretation of the Commerce Clause threatened a whole range of tax policy decisions, not just tax incentives aimed at luring new companies,” said Atkins.

Cuno v. DaimlerChrysler: A Pyrrhic Victory for Economic Neutrality, by Chris Atkins, April 18, 2005

Blog Posts
Does the Sixth Circuit’s DirecTV Opinion Reveal Tension Over the Cuno Decision?, by Chris Atkins, June 6, 2007

Supreme Court Denies Review of Cuno Property Tax Exemption, by Chris Atkins, May 24, 2006

Unanimous Supreme Court Dismisses Cuno Case, by Chris Atkins, May 15, 2006

The Cuno Hearing: From the Back Row, by Chris Atkins, March 1, 2006

Targeted Tax Relief for Katrina Rebuilding in a Cuno World, by Chris Atkins, September 22, 2005

Is the Washington Airplane Manufacturers Tax Cut Susceptible to Challenge Under Cuno v. DaimlerChrysler?, by Chris Atkins, September 16, 2005

Issues of Taxation Will Be Key to Supreme Court’s Future, by Chris Atkins, September 14, 2005

The Original Impetus for the Commerce Clause and Cuno v. DaimlerChrysler, by Chris Atkins, August 29, 2005

Congress to Hold Hearings on State Tax Issues, by Andrew Chamberlain, August 23, 2005

Revisiting Kelo v. New London: The Tax Consequences of the Supreme Court’s Ruling, by Chris Atkins, August 3, 2005

Defending Tax Competition in the Supreme Court, by Andrew Chamberlain, July 15, 2005

Cuno v. DaimlerChrysler: Good Policy Can Make Bad Law, by Chris Atkins, May 3, 2005

Analysis Finds Flaws in Court Ruling Against Tax Incentives for Business Investment, by Chris Atkins, April 18, 2005