Court strikes down Ohio's investment tax credit Saturday, September 04, 2004 In a unanimous ruling by a three judge panel, the 6th U.S. Circuit Court of Appeals in Cincinnati struck down Ohio's investment tax credit as a violation of the commerce clause of the U.S. constitution. Read more. The commerce clause focuses on maintaining free and open trade among the states. The basic principle is neutrality: a tate may not enact legislation that discriminates against interstate commerce. Hopefully, the decision will trigger a movement away from using the tax code to encourage targeted investment. The best tax strategy for states is to broaden the tax base and lower the rates across the board. Special tax breaks are largely ineffective, and they increase the costs for tax administration. They also encourage companies to "game the system". The decision will have immediate impact in the states covered by the court's jurisdiction: Ohio, Michigan, Kentucky and Tennessee. State officials in Kentucky are already reviewing the decision. Read more. And the plaitiff's attorney in the Ohio case believes that the federal apppeals court decision places tax credits issued by the Michigan Economic Growth Authority in "very substantial doubt". Read more. Since its establishment in 1995, MEGA has provided over $1.7 billion in tax credits to over 200 projects. In Ohio, the state's Attorney General may request a rehearing before the court's full 12 member panel. At the same time, if we are lucky, the court's decision will trigger a deeply needed reform of Ohio's tax structure. Read more. The court's decision is sure to be cited in other states where taxpayers are challenging the constitutionality of special tax breaks for economic development. For example, a plaintiff in Nebraska has already indicated that he will move for an expedited decision based on the Ohio case. Read more. Somewhere between 35 and 40 states have tax creidtis similar to Ohio's. Interestingly, the 6th Circuit opinion did not strike down Ohio's local property tax exemptions. Plaintiffs challenged these provisions on similar grounds. The court also indicated that direct subsidies to firms, as opposed to tax credits, would not violate the Commerce Clause. While not part of the court's holding in this case, the court's opinion may move away from "tax expenditures" as a way to encourage economic development. You can read the opinion from this page. posted by Ed Morrison |		This work is licensed under a Creative Commons License. links Some Background on EDPro Weblog The purpose of this weblog is to help economic development professionals -- EDPros -- keep up with the changes sweeping our profession. Strap on your goggles. It's a whole new game. There are no experts any more. The only place to learn about economic development is from other EDPros who are doing it. One other point: the prevaling approach (paradigm, if you like) in economic development is shifting from competition to collaboration. There are a lot of reaasons underlying this shift, but here's the important insight: You, your community, and your region will do better by collaborating and sharing information. So, spread the word...Share the knowledge. Tell a friend about EDPro Weblog. If you are using a news reader, here is the link to syndicate this site: Here's the link if you are a bloglines subscriber: Speaking and workshops on Open Source Economic Development As the idea of Open Source Economic Development starts spreading, more people are asking about it. Visit the I-Open web site to learn more. My colleagues and I are happy to explain the basic concepts in a talk or a workshop. E-mail Susan Alshuler if you'd like to learn more about workshops and speaking. Background on Ed Morrison Download some background information on me here.

The Web EDPro Weblog