An article at Daily Kos :: Free Trade and the Commerce Clause discusses a recent decision by the U.S. Court of Appeals for the Sixth Circuit in Cincinnati.
The case involves tax credits that the city of Toledo gave to Daimler-Chrysler, a major local employer, in order to lure the company into building a new plant there. Such sweetheart deals are, of course, extremely common. Giant manufacturers and big-box retailers routinely play cities and states off against each other in order to get their tax burdens lowered or lifted entirely tax. The governments play along because doing otherwise risks watching jobs go elsewhere. But as a general economic matter the incentives make no sense. They don’t increase the number of jobs or the amount of economic activity in the country overall. They deprive governments of needed tax revenue. And they put smaller firms at a disadvantage. Your average auto repair shop or florist or small software company doesn’t have the clout to get its taxes reduced by threatening to relocate.
These are all good arguments for disallowing such tax incentives. But the Sixth Circuit decision puts forth another one: they violate the Commerce Clause of the Constitution.
The heart of the decision finds that the Commerce Clause to the U.S. Constitution prohibits preferential tax credits that are intended to interfere with interstate commerce by inducing a company to locate or stay in a State, through a program of direct subsidization. The Toledo program ran afoul of the Commerce Clause because it was deemed to be a direct subsidy. Other indirect tax benefits may not be a problem.
If you’re a local politician in, say, New York and you can’t make tons of political hay off of that, you just ain’t trying.
As I read this, this affects companies, sports franchises, and lots and lots of money. This could end up being blue-state revenge…