The Associated Press

Ohio's investment tax credit is unconstitutional because it grants preferential tax treatment to companies to expand within the state rather than in other states, a federal appeals court in Cincinnati ruled today.

A dozen taxpayers and three small businesses in Toledo had sued over the investment tax credit that Ohio granted DaimlerChrysler AG to build a Jeep plant that employs about 3,800 workers and produces the Jeep Liberty, a sport utility vehicle. The plant opened in 2001.

According to court records, the total value of the tax incentives for DaimlerChrysler was about $280 million, including the investment tax credit and a 10-year local property tax exemption. It wasn't immediately clear what portion of that total was due to the investment tax credit.

The 6th U.S. Circuit Court of Appeals today reversed a lower court's August 2001 ruling and said the investment tax credit violates the U.S. Constitution.

The appellate court's rulings directly affect the four states in its circuit: Ohio, Kentucky, Michigan and Tennessee. If the decision stands, it could be used to challenge similar investment tax credit programs in perhaps 40 other states, said Terry Lodge, a lawyer who argued the case against Ohio's investment tax credit.

The Constitution authorizes Congress to regulate commerce and "implicitly limits the state's right to tax interstate commerce," Judge Martha Craig Daughtrey wrote for the unanimous three-judge appeals panel.

Ohio Attorney General Jim Petro is considering appealing today's ruling, spokeswoman Kim Norris said. Petro could ask the full, 12-judge appellate court to rehear the case or request review by the U.S. Supreme Court.