State and Local Tax Policy : Challenging the Use of Tax Credits and Other Incentives

A recent Sixth Circuit case challenged the validity under the Commerce Clause of the U.S. Constitution of an Ohio income tax credit. Although the Supreme Court overruled the decision on May 15, holding that the plaintiffs in the case did not have standing to challenge the incentives in federal court, the ruling did little to quell the debate concerning the constitutionality of the credits in question. While the Supreme Court ruling was not unanticipated, many observers were hoping for a more definitive resolution to the issue. As it stands, the Supreme Court decision leaves open the critical question of the constitutionality of incentives like that offered by the state of Ohio.Tax credits and other incentives offered by the states and local municipalities have been used as part of an economic development strategy, often to recruit or retain business activity within the borders. While some of these subsidies may be subject to challenge under notions of uniformity of equity, in this paper we argue that it is improper to challenge the credit under review in this case