Cuno v. Daimler Chrysler Inc ( 2004 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 Cuno, et al. v. DaimlerChrysler No. 01-3960
ELECTRONIC CITATION: 2004 FED App. 0293P (6th Cir.) Inc., et al.
File Name: 04a0293p.06
OFFICE OF THE ATTORNEY GENERAL OF OHIO,
Columbus, Ohio, for Appellees. ON BRIEF: Peter D.
UNITED STATES COURT OF APPEALS Enrich, NORTHEASTERN UNIVERSITY SCHOOL OF
FOR THE SIXTH CIRCUIT LAW, Boston, Massachusetts, Terry J. Lodge, Toledo, Ohio,
_________________ for Appellants. Charles A. Rothfeld, MAYER, BROWN,
ROWE & MAW, Washington, D.C., Sharon A. Jennings,
Robert C. Maier, OFFICE OF THE ATTORNEY GENERAL
CHARLOTTE CUNO , et al., X OF OHIO, Columbus, Ohio, Albin Bauer, John T. Landwehr,
Plaintiffs-Appellants, - EASTMAN & SMITH, Toledo, Ohio, Truman A.
- Greenwood, Theodore M. Rowen, SPENGLER
- No. 01-3960 NATHANSON, Toledo, Ohio, Samuel J. Nugent, Barbara E.
v. -
> Herring, OFFICE OF THE CITY OF TOLEDO LAW
, DEPARTMENT, Toledo, Ohio, for Appellees.
DAIMLERCHRYSLER, INC., et -
al., - _________________
Defendants-Appellees. -
- OPINION
N _________________
Appeal from the United States District Court MARTHA CRAIG DAUGHTREY, Circuit Judge. The
for the Northern District of Ohio at Toledo. plaintiffs initiated this litigation in state court, challenging the
No. 00-07247—David A. Katz, District Judge. validity of certain state tax credits and local property tax
abatements that were granted to DaimlerChrysler Corporation
Argued: February 4, 2003 as an inducement to the company to expand its business
operations in Toledo, Ohio. They contend that the tax scheme
Decided and Filed: September 2, 2004 discriminates against interstate commerce by granting
preferential treatment to in-state investment and activity, in
Before: SILER, DAUGHTREY, and COLE, Circuit violation of the Commerce Clause of the United States
Judges. Constitution and the Equal Protection Clause of the Ohio
Constitution. After the defendants removed the action to
_________________ federal court, the district court entered an order dismissing the
complaint under Federal Rules of Civil Procedure 12(b)(1)
COUNSEL and 12(b)(6) for failure to state a claim. Because we conclude
that the investment tax credit runs afoul of the Commerce
ARGUED: Peter D. Enrich, NORTHEASTERN Clause, we can affirm only part of the district court’s
UNIVERSITY SCHOOL OF LAW, Boston, Massachusetts, judgment.
for Appellants. Charles A. Rothfeld, MAYER, BROWN,
ROWE & MAW, Washington, D.C., Sharon A. Jennings,
1
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I. FACTUAL AND PROCEDURAL BACKGROUND of the three following years. See Ohio Rev. Code Ann.
§ 5733.33(D).
In 1998, DaimlerChrysler entered into an agreement with
the City of Toledo to construct a new vehicle-assembly plant The personal property tax exemption is authorized under
near the company’s existing facility in exchange for various §§ 5709.62 and 5709.631; it permits municipalities to offer
tax incentives. DaimlerChrysler estimated that it would specified incentives to an enterprise that “agrees to establish,
invest approximately $1.2 billion in this project, which would expand, renovate, or occupy a facility and hire new
provide the region with several thousand new jobs. In return, employees, or preserve employment opportunities for existing
the City and two local school districts agreed to give employees” in economically depressed areas. Ohio Rev.
DaimlerChrysler a ten-year 100 percent property tax Code Ann. § 5709.62(C)(1). An exemption may be granted
exemption, as well as an investment tax credit of 13.5 percent “for a specified number of years, not to exceed ten, of a
against the state corporate franchise tax for certain qualifying specified portion, up to seventy-five per cent, of the assessed
investments. The total value of the tax incentives was value of tangible personal property first used in business at
estimated to be $280 million. the project site as a result of the agreement.” Ohio Rev. Code
Ann. § 5709.62(C)(1)(a). The exemption may exceed 75
Ohio’s investment tax credit grants a taxpayer a non- percent with consent of the affected school districts. See
refundable credit against the state’s corporate franchise tax if Ohio Rev. Code Ann. § 5709.62(D)(1).
the taxpayer “purchases new manufacturing machinery and
equipment during the qualifying period, provided that the new The district court held that the investment tax credit and the
manufacturing machinery and equipment are installed in property tax exemption do not violate the Commerce Clause
[Ohio].” Ohio Rev. Code Ann. § 5733.33(B)(1). The because, although “an increase in activity in Ohio could
investment tax credit is generally 7.5 percent “of the excess increase the credit and exemption amount” under the two
of the cost of the new manufacturing machinery and statutes, an increase in activity outside the state would not
equipment purchased during the calendar year for use in a decrease the amount of the tax credit or exemption and
county over the county average new manufacturing therefore would not run afoul of the United States Supreme
machinery and equipment investment for that county.” See Court’s ruling in Westinghouse Electric Company v. Tully,
Ohio Rev. Code Ann. § 5733.33(C)(1). The rate increases to 466 U.S. 388, 400-01 (1984). From that decision, the
13.5 percent of the cost of the new investment if it is plaintiffs now appeal.
purchased for use in specific economically depressed areas.
See Ohio Rev. Code Ann. § 5733.33(C)(2), (A)(8)-(13). The II. ANALYSIS
credit may not exceed $1 million unless the taxpayer has
increased its overall ownership of manufacturing equipment We review de novo a district court’s order granting a
in the state during the year for which the credit is claimed. motion to dismiss for failure to state a claim upon which
See Ohio Rev. Code Ann. § 5733.33(B)(2)(a). To the extent relief may be granted. See Inge v. Rock Fin. Corp., 281 F.3d
that the credit exceeds the corporation’s total Ohio franchise 613, 619 (6th Cir. 2002). In considering a motion to dismiss
tax liability in a particular year, the balance of the credit is pursuant to Rule 12(b)(6), all well-pleaded factual allegations
carried forward and can be used to reduce its liability in any of the complaint must be accepted as true and the complaint
construed in the light most favorable to the plaintiffs. Id. It
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is well-settled that dismissal of a complaint is proper “only if it prevent a state from “compet[ing] with other States for a
it is clear that no relief could be granted under any set of facts share of interstate commerce” so long as “no State []
that could be proved consistent with the allegations.” Hishon discriminatorily tax[es] the products manufactured or the
v. King & Spalding, 467 U.S. 69, 73 (1984)(citing Conley v business operations performed in any other State.” Boston
Gibson, 355 U.S. 41, 45-46 (1957)). Stock Exch. v. State Tax Comm’n, 429 U.S. 318, 336-37
(1977); see also Bacchus Imports, Ltd. v. Dias, 468 U.S. 263,
On appeal, the plaintiffs’ primary contention is that the 272 (1984) (the federal Commerce Clause “limits the manner
Ohio statutes authorizing the investment tax credit and in which States may legitimately compete for interstate
personal property tax exemption violate the Commerce trade”). Rather, the parties dispute whether Ohio’s method
Clause of the United States Constitution. Secondarily, the for encouraging new economic investment – conferring
plaintiffs claim that the tax incentives violate Ohio’s Equal investment tax incentives and property tax exemptions –
Protection Clause. discriminates against interstate commerce.
A. Commerce Clause Claim The United States Supreme Court has never precisely
delineated the scope of the doctrine that bars discriminatory
The United States Constitution expressly authorizes taxes. The Court has made clear, however, that a tax statute’s
Congress to “regulate Commerce with foreign Nations, and “constitutionality does not depend upon whether one focuses
among the several States,” U.S. Const. art. I, § 8, cl. 3, and upon the benefitted or the burdened party.” Bacchus Imports,
the “negative” or “dormant” aspect of the Commerce Clause 468 U.S. at 273. The fact that a statute “discriminates against
implicitly limits the State’s right to tax interstate commerce. business carried on outside the State by disallowing a tax
A tax provision satisfies the requirements of the Commerce credit rather than by imposing a higher tax” is therefore
Clause if (1) the activity taxed has a substantial nexus with legally irrelevant. Westinghouse Elec. Corp. v. Tully, 466
the taxing State; (2) the tax is fairly apportioned to reflect the U.S. 388, 404 (1984).
degree of activity that occurs within the State; (3) the tax does
not discriminate against interstate commerce; and (4) the tax In general, a challenged credit or exemption will fail
is fairly related to benefits provided by the state. See Commerce Clause scrutiny if it discriminates on its face or if,
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 on the basis of “a sensitive, case-by-case analysis of purposes
(1977). and effects,” the provision “will in its practical operation
work discrimination against interstate commerce,” West Lynn
The parties do not dispute that the tax provisions at issue Creamery v. Healy, 512 U.S. 186, 201 (1994)(citations
have a sufficient nexus with the state, are fairly apportioned, omitted), by “providing a direct commercial advantage to
and are related to benefits provided by the state. Nor do the local business.” Bacchus Imports, 468 U.S. at 268 (citations
parties dispute that it is legitimate for Ohio to structure its tax omitted). “‘[D]iscrimination’ simply means differential
system to encourage new intrastate economic activity. treatment of in-state and out-of-state economic interests that
Indeed, the United States Supreme Court has indicated that benefits the former and burdens the latter.” Oregon Waste
the Commerce Clause “does not prevent the States from Sys., Inc. v. Dep’t. of Envtl. Quality, 511 U.S. 93, 99 (1994).
structuring their tax systems to encourage the growth and A state tax provision that discriminates against interstate
development of intrastate commerce and industry,” nor does commerce is invalid unless “it advances a legitimate local
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purpose that cannot be adequately served by reasonable amendment created a 50 percent reduction in the tax rate on
nondiscriminatory alternatives.” Id. at 101 (quoting New transfers by nonresidents and limited liability on transfers of
Energy Co. of Ind. v. Limbach, 486 U.S. 269, 278 (1988)). large blocks of shares as long as the sales were made in New
York. See id. at 324. As a result, the amendment caused
1. Investment Tax Credit transactions involving out-of-state sales to be taxed more
heavily than transactions involving in-state sales. See id. at
Although the investment tax credit at issue here is equally 330 - 31. The Court held that the reduction offended the
available to in-state and out-of-state businesses, the plaintiffs Commerce Clause’s anti-discrimination principle by
nevertheless maintain that it discriminates against interstate converting a tax that was previously “neutral as to in-state and
economic activity by coercing businesses already subject to out-of-state sales” into one that which would induce a seller
the Ohio franchise tax to expand locally rather than out-of- to trade through a New York broker in order to reduce its tax
state. Specifically, any corporation currently doing business liability. See id. at 330-32. In doing so, New York
in Ohio, and therefore paying the state’s corporate franchise effectively “foreclose[d] tax-neutral decisions” and “creat[ed]
tax in Ohio, can reduce its existing tax liability by locating both an advantage for the exchanges in New York and a
significant new machinery and equipment within the state, but discriminatory burden on commerce to its sister States.” Id.it will receive no such reduction in tax liability if it locates a at 331. The diversion of interstate commerce from the most
comparable plant and equipment elsewhere. Moreover, as economically efficient channels that resulted from New
between two businesses, otherwise similarly situated and each York’s use of “its power to tax an in-state operation as a
subject to Ohio taxation, the business that chooses to expand means of ‘requiring [other] business operations to be
its local presence will enjoy a reduced tax burden, based performed in the home state,’” id. at 336 (quoting Pike v.
directly on its new in-state investment, while a competitor Bruce Church, Inc., 397 U.S. 137, 145 (1970)), was seen by
that invests out-of-state will face a comparatively higher tax the Court as “wholly inconsistent with the free trade purpose
burden because it will be ineligible for any credit against its of the Commerce Clause.”
Ohio tax.
Shortly thereafter, in Maryland v. Louisiana, 451 U.S. 725The plaintiffs’ argument principally relies on the Supreme (1981), the Supreme Court reviewed a Louisiana statute that
Court’s own explanation of its Commerce Clause imposed a first-use tax on natural gas extracted from the
jurisprudence in cases invalidating tax schemes that continental shelf in an amount equivalent to the severance tax
encourage the development of local industry by imposing imposed on natural gas extracted in Louisiana. See id. at 731.
greater burdens on economic activity taking place outside the Taxpayers subject to the first-use tax were entitled to a direct
state. In Boston Stock Exchange, for example, the Supreme tax credit on any Louisiana Severance Tax owed in
Court held unconstitutional amendments to New York’s connection with the extraction of natural resources within the
securities transfer tax that aimed to offset the competitive state. See id. at 732. Most Louisiana consumers of offshore
advantage that the transfer tax otherwise created for out-of- gas were eligible for tax credits and exemptions, but the tax
state exchanges that did not tax transfers. See Boston Stock applied in full to offshore gas moving through and out of
Exchange, 429 U.S. at 323 - 24. Prior to the amendment, state. See id. at 733. Noting that the state severance tax
New York uniformly taxed in-state transfers of securities credit “favor[ed] those who both own [offshore] gas and
without regard to the place of sale. See id. at 322. The engage in Louisiana production” and that the “obvious
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economic effect of this Severance Tax Credit [was] to of Ohio’s “power to tax an in-state operation as a means of
encourage natural gas owners involved in the production of ‘requiring [other] business operations to be performed in the
[offshore] gas to invest in mineral exploration and home State.’” Boston Stock Exch., 429 U.S. at 336 (quoting
development within Louisiana rather than to invest in further Bruce Church, 397 U.S. at 145). Thus, they contend that like
[offshore] development or in production in other States,” the the tax credit in Maryland v. Louisiana, the economic effect
Court held that the statute “unquestionably discriminate[d] of the Ohio investment tax credit is to encourage further
against interstate commerce in favor of local interests.” Id. at investment in-state at the expense of development in other
756 - 57. states and that the result is to hinder free trade among the
states. Cf. Boston Stock Exch., 468 U.S. at 336.
In Westinghouse Electric Corp. v. Tully, 466 U.S. 388(1984), the Supreme Court invalidated a New York franchise The defendants maintain that the Supreme Court’s opinions
tax that gave corporations an income tax credit based on the should be read narrowly to hold that tax incentives, like the
portion of their exports shipped from New York. Under the Ohio tax credit, are permissible as long as they do not
law, income from a subsidiary engaged exclusively in exports penalize out-of-state economic activity, citing Philip M.
was to be combined with the income of its parent company Tatarowicz & Rebecca F. Mims-Velarde, An Analytical
for state tax purposes. See id. at 393. In an effort to provide Approach to State Tax Discrimination Under the Commerce
an incentive to increase export activity in New York, the Clause, 39 Vand. L. Rev. 879, 929 (1986) (elaborating upon
parent company was given a partially offsetting credit against and applying this distinction to the Court’s precedents). In
income tax attributable to the subsidiary’s income generated their view, the Commerce Clause is primarily concerned with
from New York exports. See id. Because the credit was preventing economic protectionism – that is, regulatory
based on the ratio of the subsidiary’s New York exports to its measures designed to benefit local interests by burdening out-
income from all export shipments, a company’s overall New of-state commerce. According to their theory, the only tax
York tax liability would decrease as exports from New York credits and exemptions that would run afoul of the Commerce
increased relative to exports from other states. Conversely, a Clause fall into two categories: those that function like a tariff
company’s New York tax liability increased when exports by placing a higher tax upon out-of-state business or products
from New York decreased relative to exports from other and those that penalize out-of-state economic activity by
states. See id. at 401. The Court found that the tax scheme relying on both the taxpayer’s in-state and out-of-state
“penalize[d] increases in the [export] shipping activities in activities to determine the taxpayer’s effective tax rate.
other states,” id. at 401, and that it was therefore a
discriminatory tax that advantaged New York firms “by Although it is arguably possible to fit certain of the
placing ‘a discriminatory burden on commerce to its sister Supreme Court’s cases into this framework, it is clear that the
States.’” Id. at 406 (quoting Boston Stock Exchange, 429 U.S. Court itself has not adopted this approach in analyzing
at 331). dormant Commerce Clause cases, undoubtedly because it
rests on the distinction between laws that benefit in-state
Analogizing to the provisions considered in Boston Stock activity and laws that burden out-of-state activity. Such a
Exchange, Maryland v. Louisiana, and Westinghouse, the distinction is tenuous in light of the Court’s acknowledgment
plaintiffs argue that the investment tax credit at issue here that “[v]irtually every discriminatory statute allocates benefits
encourages the development of local business through the use or burdens unequally; each can be viewed as conferring a
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benefit on one party and a detriment on the other, in either an 2. Personal Property Tax Exemption
absolute or relative sense.” Bacchus Imports, 468 U.S. at
273. Indeed, economically speaking, the effect of a tax The plaintiffs maintain that the discriminatory characteristic
benefit or burden is the same. Moreover, the Court’s of the City’s personal property tax exemption rests not on the
command to examine the practical effect of challenged tax fact that only in-state property is eligible for exemption, but
schemes suggests that “constitutionality [should] not depend rather on the conditions that Ohio places on eligibility –
upon whether one focuses upon the benefitted or the burdened conditions that require beneficiaries of the exemptions to
party.” Id.; see also Westinghouse, 466 U.S. at 404 (“Nor is agree to maintain a specified level of employment and
it relevant that New York discriminates against business investment in the state. The effect, they argue, is to subject
carried on outside the State by disallowing a tax credit rather two similarly situated owners of Ohio personal property to
than by imposing a higher tax.”). differential tax rates. A taxpayer who agrees to focus his
employment or investment in Ohio receives preferential
Although the defendants liken the investment tax credit to treatment in the form of a tax break, while a taxpayer who
a direct subsidy, which would no doubt have the same prefers to preserve the freedom to hire or invest elsewhere
economic effect, the Court has intimated that attempts to does not.
create location incentives through the state’s power to tax are
to be treated differently from direct subsidies despite their Although conditions imposed on property tax exemptions
similarity in terms of end-result economic impact. The may independently violate the Commerce Clause, conditional
majority in New Energy noted in dicta that subsidies do not exemptions raise no constitutional issues when the conditions
“ordinarily run afoul of [the Commerce Clause]” because they for obtaining the favorable tax treatment are related to the use
are not generally “connect[ed] with the State’s regulation of or location of the property itself. Stated differently, an
interstate commerce.” New Energy Co., 486 U.S. at 278; see exemption may be discriminatory if it requires the beneficiary
also West Lynn Creamery, 512 U.S. at 199 n.15 (“We have to engage in another form of business in order to receive the
never squarely confronted the constitutionality of subsidies, benefit or is limited to businesses with a specified economic
and we need not do so now. We have, however, noted that presence. Cf. Maryland, 451 U.S. at 756-57 (finding
‘[d]irect subsidization of domestic industry does not unconstitutional a tax benefit that encouraged natural gas
ordinarily run afoul’ of the negative Commerce owners to invest in other forms of mineral exploration and
Clause.”(quoting New Energy Co., 486 U.S. at 278)). Thus, development within Louisiana rather than investing further in
the distinction between a subsidy and a tax credit, in the natural gas development outside the state). However, if the
constitutional sense, results from the fact that the tax credit conditions imposed on the exemption do not discriminate
involves state regulation of interstate commerce through its based on an independent form of commerce, they are
power to tax. permissible.
In short, while we may be sympathetic to efforts by the City Contrary to the plaintiffs’ assertions, the conditions
of Toledo to attract industry into its economically depressed imposed on the receipt of the Ohio property tax exemption are
areas, we conclude that Ohio’s investment tax credit cannot minor collateral requirements and are directly linked to the
be upheld under the Commerce Clause of the United States use of the exempted personal property. The authorizing
Constitution. statute requires only an investment in new or existing
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property within an enterprise zone and maintenance of conditional character of the Ohio property tax exemption does
employees. See Ohio Rev. Code Ann. § 5709.62(C)(1). The not resemble characteristics of property tax exemptions found
statute does not impose specific monetary requirements, unconstitutional by previous courts.
require the creation of new jobs, or encourage a beneficiary to
engage in an additional form of commerce independent of the Finally, the plaintiffs’ argument regarding the effect of the
newly acquired property. 1 As a consequence, the conditions exemption overlooks fundamental differences between tax
placed on eligibility for the exemption do not independently credits and exemptions. Unlike an investment tax credit that
burden interstate commerce. reduces pre-existing income tax liability, the personal
property exemption does not reduce any existing property tax
The cases on which the plaintiffs rely are inapplicable here, liability. The exemption merely allows a taxpayer to avoid
because they fail to address the question of whether tax liability for new personal property put into first use in
conditions attached to the receipt of an exemption violate the conjunction with a qualified new investment. Thus, a
anti-discrimination principle where the conditions themselves taxpayer’s failure to locate new investments within Ohio
do not impose independent burdens upon commerce. In simply means that the taxpayer is not subject to the state’s
Camps Newfound/Owatonna,Inc. v. Town of Harrison, 520 property tax at all, and any discriminatory treatment between
U.S. 564 (1997), the Supreme Court reviewed a property tax a company that invests in Ohio and one that invests out-of-
exemption for charitable organizations that excluded state cannot be attributed the Ohio tax regime or its failure to
organizations operated principally for the benefits of reduce current property taxes. Additionally, the personal
nonresidents and found the exemption unconstitutionally property tax exemption is internally consistent because, if
discriminatory because the effect of the statute was to universally applied, the new property would escape tax
“distinguish[] between entities that serve a principally liability irrespective of location. Every new investment, no
interstate clientele and those that primarily serve an intrastate matter where undertaken, would be exempt from a tax. Thus,
market, singling out [entities] that serve mostly in-staters for businesses that desire to expand are neither discriminated
beneficial tax treatment, and penalizing those camps that do against nor pressured into investing in Ohio. Accordingly, we
a principally interstate business.” Id. at 576. Similarly, the hold that the Ohio personal property tax exemption does not
Fifth Circuit in Pelican Chapter, Associated Builders & violate the dormant Commerce Clause.
Contractors, Inc. v. Edwards, 128 F.3d 910 (5th Cir. 1997),
invalidated a tax exemption because it required beneficiaries B. State Equal Protection Claim
to give a preference to in-state manufacturers, suppliers, and
laborers. The Ohio provision at issue contains no restriction The plaintiffs also challenged the investment tax credit and
on the individuals employed or served. Therefore, the property tax exemption under the Equal Protection Clause of
the Ohio Constitution, contending that the authorizing statutes
“reflect a bias in favor of entrenched local interests that
results in a discriminatory allocation of tax burdens and
1
Plaintiffs’ assertion that the exemption, once received, coerces benefits.” The district court found no equal protection
business into continual re-investment in Ohio in order to preserve the tax violation based on a determination that both provisions were
exemption is not persuasive. The exemption is project-specific and, rationally related to a legitimate state interest in revitalizing
therefore, a business do es not lose its existing ex emp tion by d eciding to
make its next investment elsewhere.
economically troubled areas.
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The Equal Protection Clauses of the Ohio and United States facilitating economic development, creating or preserving
Constitutions impose identical limitations on government jobs, and improving the economic welfare of citizens);
classification. See Am. Ass’n of Univ. Professors v. Cent. Nordlinger v. Hahn, 505 U.S. 1, 12 (1992) (“[T]he State has
State Univ., 717 N.E.2d 286, 291 (Ohio 1999) (rejecting an a legitimate interest in local neighborhood preservation,
argument that the state equal protection clause imposes continuity, and stability.”) (citing Village of Euclid v. Ambler
stricter analysis than the federal equal protection clause). Realty Co., 272 U.S. 365 (1926)). The benefits conferred by
Heightened review is triggered only if the classification the investment tax credit and property tax exemption are
“jeopardizes exercise of a fundamental right or categorizes on rationally related to this interest, given that their objective is
the basis of an inherently suspect characteristic.” MCI to encourage businesses to relocate or expand existing
Telecommunications Corp. v. Limbach, 625 N.E.2d 597, 600 facilities in central cities or areas that have high
(Ohio 1994). Because the tax credit and the exemption unemployment rates, significant low-income populations, or
provision classify on the basis of locality, a classification that deteriorating buildings.
is not inherently suspect, the tax incentives need only satisfy
rational basis review. The plaintiffs argue nonetheless that granting tax incentives
to a new domestic business but not nonresident businesses is
Under rational basis review, a classification “must be not a legitimate purpose under Ohio’s Equal Protection
upheld against equal protection challenge if there is any Clause. However, the cases cited in support of this argument
reasonably conceivable state of facts that could provide a lend little or no weight to the plaintiffs’ position. In
rational basis for the classification.” Cent. State Univ., 717 Metropolitan Life Insurance Co. v. Ward, 470 U.S. 869, 880
N.E.2d at 290 (quoting FCC v. Beach Communications, Inc., (1985), for example, the Court invalidated an Alabama statute
508 U.S. 307, 313 (1993)). A rational relationship exists so that imposed a higher tax rate on insurance companies that
long as “the relationship of the classification to its goal is not were incorporated or maintained their principal place of
so attenuated as to render the distinction arbitrary or business outside of Alabama, on the ground that the
irrational.” Pica Corp., Inc. v. Tracy, 646 N.E.2d 206, 209 difference in treatment failed to advance a legitimate state
(Ohio Ct. App. 1994). The state, moreover, has no duty to interest. In so ruling, the Court held “that promotion of
produce legislative facts to sustain the rationality of a domestic business within a State, by discriminating against
statutory classification. Cent. State Univ., 717 N.E.2d at 290. foreign corporations that wish to compete by doing business
A statute is presumed constitutional, and the “burden is on the there, is not a legitimate state purpose.” Id. Thus,
one attacking the legislative arrangement to negative every Metropolitan Life holds that a state may not impose a
conceivable basis which might support it.” Id. (quoting Heller discriminatory tax in order to promote domestic industry
v. Doe, 509 U.S. 312, 320 (1993)(citation omitted)). solely based on nonresident status. The tax benefits under the
Ohio statutes, however, are equally available to domestic and
The courts have recognized a state’s legitimate interest in foreign corporations and classify corporations on the basis of
revitalizing economically troubled areas in order to eliminate new investment in economically depressed areas.
problems frequently associated with urban blight. See, e.g.,
Desenco, Inc. v. Akron, 706 N.E.2d 323, 332 (Ohio 1999) Likewise inapplicable are the cited opinions in Allegheny
(statutes that created economic development districts were Pittsburgh Coal Co. v. County Commission of Webster
rationally related to the state’s legitimate interest in County, 488 U.S. 336 (1989), and Hooper v. Bernalillo
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County Assessor, 472 U.S. 612 (1985). In both cases, the § 5733.33, and we enjoin its enforcement. We AFFIRM the
Supreme Court struck down a county property tax assessment remaining portions of the district court’s judgment.
scheme that could not reasonably support the state’s asserted
legislative purpose. In Allegheny, the county tax assessor
valued property based on the last sale price regardless of
when it was last sold, providing only a modest increase in
assessed value for properties that had not been recently
transferred. See id. at 343. This practice resulted in gross
disparities in the assessed value of comparable properties. The
Court acknowledged that a “[s]tate may divide different kinds
of property into classes and assign to each class a different tax
burden so long as those divisions and burdens are
reasonable,” but it found no rational basis for the county’s tax
scheme whose asserted purpose was to “assess[ ] properties
at true current value.” Id. at 343-44. Similarly, the Court
held in Hooper that a tax exemption classifying military
veterans based solely on their period of residency within the
state could not be rationalized by the state’s interest in
encouraging veterans to relocate to the state or in repaying
veterans for their military service. 472 U.S. at 620-22.
By contrast, the classification in this case is clearly
supported by facts that give rise to a legitimate state interest.
In the equal protection context, a tax statute withstands
constitutional scrutiny as long as the burden it imposes is
found to be rationally related to that purpose. The purpose of
the Ohio statutes – to encourage industrial development and
economic stimulation of the state’s economically troubled
areas – clearly has a reasonable nexus to the tax provisions.
Hence, we conclude that the plaintiffs have failed to
demonstrate that the challenged tax incentives violate the
Equal Protection Clause of the Ohio Constitution.
III. CONCLUSION
For the reasons set out above, we REVERSE that portion
of the district court’s judgment upholding as constitutional
the investment tax credit provision of Ohio Rev. Code Ann.