TEI files amicus brief in Cuno case, citing danger for economy if Ohio ruling stands: e-Filing, mutual assistance procedures prompt IRS meetings.

• Position: Tax Executives Institute

Tax Executives Institute has urged the Supreme Court to review a lower court decision overturning Ohio investment tax credits intended to foster economic development (DaimlerChrysler Corp. v. Cuno, U.S., No. 04-1704.) In Cuno, a federal court in Ohio ruled that the States's investment tax credit is unconstitutional because it affords in-state development preferential treatment, thereby impermissibly burdening interstate commerce.

In its July 15 "friend of the court" brief, TEI argued that the United States Court of Appeals for the Sixth Circuit erroneously applied prior Supreme Court opinions on the Commerce Clause, and urged the high court to clarify the Constitution's bar on discriminatory taxes. The Institute said the lower court's ruling, if allowed to stand, could reverberate through the economy, upending settled expectations of both businesses and the States.

"Cuno may well be the most significant state tax case to come along in decades," TEI President Judy Zelisko explained, noting that many states have enacted tax incentives to spur economic development that will be threatened unless the ruling is reversed.

30 Years of Cases Explained

The Cuno case arose when a taxpayer group challenged Ohio's grant of a tax credit as violating the Commerce Clause of the Constitution. The 7.5-percent credit was available to any company, whether or not already present in Ohio, that increased its investment in manufacturing in the state; in addition, capital investment occurring within specifically designated areas was eligible for an enhanced credit of 13.5 percent, thereby allowing the state to target economically depressed areas.

In its brief, TEI acknowledged that the Supreme Court had previously invoked the Commerce Clause to invalidate a number of state taxing schemes that unreasonably burdened interstate commerce by discriminating between in-state and out-of-state taxpayers. "While the Sixth Circuit was correct to consider those decisions," TEI stated, "the Court of Appeals erred in concluding that the Court's jurisprudence mandated striking down Ohio's investment tax credit."

In the 1977 Boston Stock Exchange case, TEI explained, the Court held a New York transfer tax that more heavily taxed stock transfers if they occurred outside the state to violate the Commerce Clause. "Boston Stock Exchange has since provided the lens for reviewing the constitutionality of state taxing schemes."

Seven years after Boston Stock Exchange, the Supreme Court...