By Ken Alltucker
Enquirer staff writer
A federal appeals court on Thursday ruled that a state tax credit widely used by manufacturers is unconstitutional because it gives companies that expand in Ohio more favorable tax treatment than companies that expand elsewhere.
The ruling stems from a lawsuit filed by a dozen taxpayers and businesses challenging the state's award of $280 million in tax incentives for DaimlerChrysler's $1.2 billion Jeep Liberty plant in Toledo. The plant opened in 2001 and employs 3,800.
If the 6th U.S. Court of Appeals ruling stands, it effectively kills one of the most popular incentive programs used by manufacturers in Ohio. The state has awarded $2 billion in tax credits based on more than 16,400 requests from businesses since 1995.
Manufacturers that buy new machines and equipment have used the program over the past decade to reduce state corporate franchise tax bills.
"The effect of the ruling is to eliminate that tax credit," said Bruce Johnson, Ohio Department of Development director. "We use this extensively on virtually every manufacturing project we do. "
Johnson added that the ruling could put Ohio at a "competitive disadvantage" against other states seeking to keep or attract high-wage manufacturing jobs.
Gov. Bob Taft and Johnson will request that the Ohio Attorney General's Office appeal the ruling. Options include asking the U.S. Supreme Court to review the case or requesting that the full, 12-judge appellate court hear the case.
Circuit Judge Martha Craig Daughtrey wrote the opinion for the three-judge panel.
Johnson said the ruling also may prompt his department to request the Legislature to write new tax laws to ensure that the state has a full complement of economic development tools.
While the court scrutinized Ohio's tax incentives offerings for the Toledo plant, the ruling could have a direct impact on incentives offered in Kentucky, Michigan and Tennessee because the appeals court district includes those states.
For example, Kentucky's Industrial Development Act allows companies to win a corporate income tax break to offset the costs of purchasing manufacturing equipment. It's one of Kentucky's most popular tax break offerings for relocating companies, said Dan Tobergte, executive vice president of the Tri-County Economic Development Corp. that recruits business and industry for Kenton, Campbell and Boone counties.
"Certainly, we'll take a look at it and try to determine the intent of the court and the potential impact it would have," said Tobergte.
Chad Munitz, Cincinnati's economic development director, said city lawyers will review the case also to gauge the ruling's impact.
The Ohio Department of Development could not immediately provide the number of businesses in Hamilton, Clermont, Butler and Warren counties that use the tax credit.
Johnson said the program has helped attract $32 billion in corporate investment in Ohio since 1995.
Other Ohio incentives programs are not impacted by the ruling, including enterprise zones that award equipment and property tax breaks to companies that build in distressed areas or award tax credits based on job creation.
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