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Tax Incentives

State and Local tax questions

1. Westinghouse raises the question as to the constitutional status of various tax incentives designed to induce in-state location. Are investment tax credits and similar credits limited to in-state expenditures under a constitutional cloud after Westinghouse? What about the practice of limiting favorable methods of depreciation, such as ACRS, to investments in in-state property?

2(a) If the taxpayer's assertion in General Motors has been substantiated by record support, would be case have been decided differently? Why?
(b) What are the implications of General Motors as a defense to claims of unconstitutional discrimination outside the regulated industry context?

3. What is the significance of Complete Auto's fourth prong-that a tax must be fairly related to services provided by the state-in light of the reading in the Court gave it in Commonwealth Edison?

4. Was Justice Blackman overstating the case when he said that the court had emasculated the fourth prong? If so, what independent role does the fourth prong continue to play? Specifically, can you posit a case in which tax would violated Complete Auto' fourth prong without violating one of the other three prongs?

Give detail answers and list the sources.

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State and Local tax questions

1. Westinghouse raises the question as to the constitutional status of various tax incentives designed to induce in-state location. Are investment tax credits and similar credits limited to in-state expenditures under a constitutional cloud after Westinghouse? What about the practice of limiting favorable methods of depreciation, such as ACRS, to investments in in-state property?

Many states offer a tax incentive to companies that invest or expand their business operation in that state. In 2004 the U.S. Court of Appeals for the Sixth Circuit addressed the constitutionality of these incentives in Cuno v. DaimlerChrysler; a similar question was addressed in Westinghouse. In Cuno, the Court held that Ohio's investment tax credit violated the Commerce Clause of the U.S. Constitution. However, it allowed Ohio to continue providing property tax abatements. 40 states with similar laws to Ohio could no longer enforce these laws after the Cuno decision.

Source: Ericka Lunder, CRS Report for Congress, July 1, 2005, http://www.policyarchive.org/handle/10207/bitstreams/4160.pdf

The ongoing debate about the constitutionality of in-state tax incentives was heightened by the decision in Westinghouse. For example, the practical effects of limiting the credit to in-state expenditures or to in-state property means that the increasingly large tax incentives are more common than not. In addition, these incentives are clustered to regions with the United States that cater to specific industries, including technology, agriculture, and machinery. States that create tax incentives typically do so because other states around them have done so. It's a matter of competition, in other words.
Source: Robert S. Chirinko and Daniel J. Wilson, State Investment Tax Incentives: What Are the Facts?, November 2006, http://www.frbsf.org/publications/economics/papers/2006/wp06-49bk.pdf

For more information, see also:

http://www.tulsabeacon.com/?p=5441 How Kaiser Corporation received $30 million in state tax credits
http://www.bizjournals.com/kansascity/news/2011/05/31/applebees-scoops-up-state-tax-incentives.html Applebee's tax breaks for moving their headquarters to Missouri

2(a) if the taxpayer's assertion in General Motors has been substantiated by record support, would be case have been decided differently? Why?

The ...

Solution Summary

Discusses the constitutionality of tax incentives for businesses.

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