US Supreme Court Decision on Ohio's Investment Tax Credit

May 15, 2006

By a lengthy decision announced this morning, the U.S. Supreme Court vacated the Sixth Circuit's decision on Ohio's investment tax credit (ITC).  Eight Justices agreed with Chief Justice Roberts authoring the majority opinion.  Justice Ginsburg concurred in the conclusion as well and wrote a brief opinion setting forth a statement addressing how broadly the decision could be applied to other situations.

The Sixth Circuit had ruled that Ohio's ITC violated the U.S. Constitution's Commerce Clause by discriminating against interstate commerce.  When the U.S. Supreme Court accepted the appeal, it requested that the parties address the merits of the ITC as well as whether the taxpayer-plaintiffs had the right (called "standing") to even assert their arguments.

As we reported immediately after oral argument was held in early March 2006, several Justices sounded very skeptical of the plaintiffs' right to bring this case.  By today's ruling, the entire Court has confirmed that the Toledo, Ohio taxpayers did NOT have that right.  Therefore, the Court did not address the merits of the plaintiffs' Commerce Clause challenge.

The taxpayer-plaintiffs had argued that, by the State of Ohio granting tax credits to Daimler Chrysler, a greater burden of the total tax revenues was placed upon them. However, as the Court noted, "a plaintiff must allege personal injury fairly traceable to the defendants' allegedly unlawful conduct and likely to be redressed by the requested relief."  In determining whether plaintiffs met that standard, the Court noted that "it is unclear that tax breaks of the sort at issue here do in fact deplete the treasury: The very point of the tax benefits is to spur economic activity, which in turn increases government revenues."  The plaintiffs' 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 credit.  Establishing injury requires speculating that elected officials will increase a taxpayer-plaintiff's tax bill to make up a deficit; establishing redressability requires speculating that abolishing the challenged credit will redound to the benefit of the taxpayer because legislators will pass along the supposed increased revenue in the form of tax reductions."  In light of that speculation, a tax-payer plaintiff has no right to insist that the government dispose of any increased revenue it might experience as a result of his suit by decreasing his tax liability or bolstering programs that benefit him.  In short, decisions regarding how to allocate tax burdens and tax savings are "the very epitome of a policy judgment committed to the 'broad and legitimate discretion'" of legislators.  Furthermore, because state budgets frequently contain an array of tax and spending provisions, granting standing to these taxpayer-plaintiffs "would interpose the federal courts as 'virtual continuing monitors of the wisdom and soundness' of state fiscal administration, contrary to the more modest role Article III (of the Constitution) envisions for federal courts."

Ultimately the Court ruled that the lower courts erred by considering the plaintiff's claims.  The Sixth Circuit's decision is vacated (with respect to the ITC) and remanded to the lower courts to be dismissed.

As an aside, at the lower courts, this case also addressed the taxpayer-plaintiffs' challenge to Ohio's personal property tax exemption.  The Sixth Circuit upheld the constitutionality of that exemption, and the taxpayer-plaintiff requested that the Supreme Court reverse that ruling.  The Supreme Court has not accepted that issue for review, did not hear oral argument on that issue, and today's ruling does not specifically address the personal property tax exemption.

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