Challenge to Corporate Tax Incentives Rejected

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In a blow to efforts to curb corporate incentives offered by states, cities, and school districts, the U.S. Supreme Court ruled last week that a group of taxpayers may not challenge tax credits that Ohio gave to an auto company in return for its investments in a manufacturing plant in the city.

The incentives, which typically forgive or abate property taxes and other levies, are intended to encourage development in depressed communities. But critics say they amount to giveaways that result in higher taxes for individual residents and other businesses, and do not boost the economy in the long run.

Ohio and Michigan taxpayers separately sued over a 1998 deal in which DaimlerChrysler Corp. agreed to build a new $1.2 billion assembly plant in Toledo, Ohio, in exchange for about $280 million in state and local tax incentives.

In a part of the deal not reviewed by the Supreme Court, the 30,000-student Toledo school district and the 6,900-student Washington district, also in Toledo, granted DaimlerChrysler a 100 percent exemption from property taxes for 10 years. Lower federal courts ruled that the exemption was permissible.

The taxpayers claimed in their suit that the state’s investment tax credit depletes state funds and thus “diminishes the total funds available for lawful uses and imposes disproportionate burdens” on the taxpayers for public works, including schools.

The Supreme Court ruled unanimously on May 15 that the taxpayers did not have standing because they could not show that they suffered a legal injury because of the tax credit.

Their alleged injury was “conjectural or hypothetical, in that it depends on how legislators respond to a reduction in revenue, if that is the consequence of the [tax] credit,” Chief Justice John G. Roberts Jr. wrote for the court in DaimlerChrysler Corp. v. Cuno (Case No. 04-1704).

“[I]t is unclear that tax breaks of the sort at issue here do in fact deplete the treasury,” he wrote. “The very point of the tax benefits is to spur economic activity, which in turn increases government revenues.”

Fritz Fekete, the research director for the Ohio Education Association, said that although some school districts have supported tax incentives for corporations, by and large public education has not benefited.

“What’s happened over the last decade is that the state has continually shifted the burden of school financing onto local government, cutting corporate and business taxes overall, and de-funded their commitment to public schools,” he said.

Nonlawyer Parents

Separately, the justices asked the Bush administration for its views on whether, and when, parents who are not lawyers may represent their child in a federal lawsuit under the Individuals with Disabilities Education Act.

A lawsuit by two Ohio parents that challenges the appropriateness of a school’s educational plan for their son, who has autism spectrum disorder, was ordered dismissed by the 6th Circuit court in 2005 because the parents represented their child in the appeal.

In their high court appeal, the parents say that the federal appellate courts have adopted three different positions on the issue.

The 6th Circuit court ruled that nonlawyer parents may not press an IDEA case in federal court on behalf of their child under any circumstances. Another federal appeals court has ruled that nonlawyer parents are not limited at all. And four others have held that such parents need a lawyer to press a child’s substantive claims under the IDEA, but not the parents’ procedural claims.

The high court will wait for a brief to be filed by the U.S. solicitor general’s office before deciding whether to grant review of the appeal in Winkelman v. Parma City School District (No. 05-983).

Vol. 25, Issue 38, Page 28

Published in Print: May 24, 2006, as Challenge to Corporate Tax Incentives Rejected
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