DETROIT -- A federal court on Thursday struck down an Ohio investment tax credit used to lure companies to the state in a ruling a lawyer who argued the case said would stop "huge corporate tax giveaways" by states.
Plaintiffs in the case had sued over various tax breaks, totaling $280 million, that Ohio and local governments granted DaimlerChrysler to build a new Jeep assembly plant in Toledo, Ohio.
The court upheld the right of some local governments to offer corporate tax breaks but ruled against the Ohio state tax credit.
The plaintiffs, several residents and small businesses in Toledo that were displaced by the plant, contended that lost tax revenues from the credits would result in diminished public services and greater tax burdens for themselves and the general public.
"While we may be sympathetic to efforts by Toledo to attract industry into its economically depressed areas, we conclude that Ohio's investment tax credit cannot be upheld" under the U.S. Constitution, Circuit Judge Martha Craig Daughtrey wrote in the ruling by the U.S. Court of Appeals for the Sixth Circuit.
Peter Enrich, an attorney for the plaintiffs, estimated that the Ohio state tax credits impacted by the ruling could total about $70 million over several years, out of the total $280 million tax breaks offered to DaimlerChrysler by state and local governments.
A DaimlerChrysler spokeswoman said that the company was reviewing the ruling, and had not been able to determine the impact on its bottom line.
States hoping to lure companies to invest have increasingly relied on tax credits to attract new business, particularly in underdeveloped or urban areas.
"States have gotten caught in this battle where they're giving away their tax base to large corporations," Enrich said. "We think (the decision) really marks the beginning of the end of these huge corporate tax giveaways that hurt state governments."
The appeals court covers four states -- Ohio, Kentucky, Michigan and Tennessee -- but the ruling's impact could extend across the country, said Enrich, who is also a Northeastern University School of Law professor.
"This is the first decision on this issue in any court in the country," Enrich said. "It certainly raises a very powerful precedent that could be argued nationwide."