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Published: Friday, 4/15/2005

Ohio budget plan ends controversial tax credit


COLUMBUS - An Ohio corporate tax credit struck down in federal court as an unconstitutional infringement on interstate commerce will come to a premature end under the state budget proposal passed by the House.

The Investment Tax Credit would be curtailed even as state lawyers ask the U.S. Supreme Court to hear an appeal in a case that involves DaimlerChrysler AG's new Toledo Jeep plant. The case is being watched closely by Michigan and about 39 other states with similar credits.

The $51.3 billion, two-year budget proposal, now in the Senate, sets a June 30 deadline for any business to purchase machinery and equipment that would be eligible for the credit. The equipment must be installed by June 30, 2006.

The eventual demise of the credit was inevitable. Gov. Bob Taft, as part of a massive overhaul of the state's personal income and corporate taxes, called for phasing out over five years the corporate franchise tax and tangible personal property tax on businesses and replacing them with a new tax on gross sales.

Those who receive approval for the credit by June 30 may continue to claim it against their corporate franchise tax bill until the last of the tax disappears in 2010.

Mark Anthony, spokesman for Attorney General Jim Petro, said the decision to end the credit won't affect the court case. The attorney general recently received a two-month deadline extension to file a brief supporting its request that the nation's high court hear its appeal.

"DaimlerChrysler continues to claim the tax credit, which is offered over a few years," Mr. Anthony said. "This case is not moot for them."

The Cincinnati-based 6th U.S. Circuit Court of Appeals found that the credit violates interstate commerce protections because it offers inducements to companies to make investments in Ohio but not if the same company makes the same investment elsewhere.

A dozen individuals and three businesses challenged use of the credit as part of a $280 million incentive package that helped persuade DaimlerChrysler to build an assembly factory next to its Stickney Avenue plant. The plant opened in 2001 and employs about 3,800.

Peter E. Enrich, professor at Boston's Northeastern University school of law, was recruited by consumer activist and former presidential candidate Ralph Nader to argue the case. He said the court challenge should continue.

"It's a live issue," he said. "People are claiming the credit some number of years into the future, and frankly, it's in everyone's interest to find out where we stand, not just in Ohio but around the country, and to level the playing field."

The credit allows manufacturers to apply 7.5 percent of the new equipment costs, or up to 13.5 percent in economically distressed areas like Toledo, against their corporate tax bill.

- Jim Provance

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