March 1, 2006
Cuno Argued in Supreme Court; Tax Foundation Urges Court to Protect Tax Competition
For immediate release
Media contact: William Ahern (202) 464-5101
Washington, D.C., February 28, 2006—The Supreme Court will hear oral arguments tomorrow in the case of DaimlerChrysler v. Cuno. In a friend-of-the-court brief filed in the case, the Tax Foundation urged the Supreme Court to reverse a Sixth Circuit Court of Appeals decision which ruled that such credits discriminated against interstate commerce because they “encourage” investment in Ohio.
“The Cuno case is the perfect opportunity for the Supreme Court to affirm that the Constitution is no bar to states that want to encourage investment through low tax systems,” said Chris Atkins, staff attorney for the Tax Foundation.
The Tax Foundation’s friend-of-the-court brief on the merits, written by Atkins and Kyle Sollie of Dechert LLP, contended that as a threshold matter, the plaintiffs in Cuno did not even have standing to bring the lawsuit because the credit did not discriminate against them personally, and the plaintiffs did not show how a favorable court ruling would redress their alleged injuries.
The brief also asserted that while investment tax credits may often be counterproductive, a debate over that issue must occur in the legislature, not the courts.
“None of the plaintiffs in Cuno were denied Ohio’s investment tax credit as a result of investing in another state,” said Sollie. “If the Supreme Court nonetheless allows these plaintiffs to bring their claims, the courts would become the final arbitrators of tax policy grievances.”
On the merits of the decision, the brief asserted that the Sixth Circuit’s reasoning would threaten the ability of a state to set its own tax policy, such as the decision to have low rates.
“We agree, as a matter of tax policy, that tax credits make little sense, and the more narrowly targeted the credit is, the less sense it makes” said Atkins. “But the Supreme Court has long said that the Commerce Clause does not forbid states from ‘encouraging’ investment.”
The Tax Foundation’s amicus brief pointed out that there are over 37,000 separate tax jurisdictions in the United States, “and they all levy different mixes of sales, income and property taxes,” Atkins said. “To suggest that none of these different tax systems can ‘encourage’ investment is to say that they must have identical tax systems.”
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
The full brief is available online at http://www.taxfoundation.org/publications/show/1173.html.
