Is the Washington Airplane Manufacturers Tax Cut Susceptible to Challenge Under Cuno v. DaimlerChrysler?

September 16, 2005

The defenders of Cuno v. DaimlerChrysler assure us that the rule in that case could never be extended to state tax cuts. Looking more closely at a tax cut scheduled to go into effect on October 1 in Washington state, however, makes it more likely that Cuno could indeed be used to strike down state tax cuts.

House Bill 2294, signed into law in Washington state in 2003, was an economic development effort aimed at ensuring the Boeing would assemble its new 787 aircraft at its facilities in Washington state. Part of the package of incentives was a reduction in the rate of Washington’s Business and Occupation (B&O) tax for companies who manufacture airplanes in Washington state. The tax cut would only apply to companies manufacturing airplanes in Washington state.

Cuno v. DaimlerChrysler invalidated Ohio’s investment tax credit because it would only apply to investment made in Ohio. Thus, if Daimler had invested in Michigan, Ohio would not get the credit. In the Sixth Circuit’s reasoning, this impermissibly discriminated against interstate commerce. The Washington B&O tax cut for airplane manufacturers has a similar restriction: it is only available to manufacturers in Washington state (i.e. Boeing), and thus is susceptible to challenge under the Cuno theory of discrimination.

Cuno would only allow the tax cut if it were available to Boeing no matter where they chose to build the 787. It is doubtful that state lawmakers would want to give Boeing a tax break for building a plane in another state. Cuno, therefore, severely harms the ability of Washington state lawmakers to alter their tax code to make Washington state an attractive place for Boeing to do business.

We have written two analyses of the Cuno decision (available here and here) and submitted an amicus brief to the U.S. Supreme Court urging them to review the case.

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