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WASHINGTON, DC-Developers, manufacturers and municipal and state representatives breathed a sigh of relief over the Supreme Court's unanimous decision to vacate the Sixth Circuit Court's finding in Cuno v. DaimlerChrysler. The case had threatened to upend the practice of providing tax incentives for direct investment and expansion activities.
"It clears away a cloud of uncertainty that has been hanging over market place for the better part of year," says John C. Biggins, co-founder and president of Stadtmauer Bailkin Biggins, LLC and partner on CoreNet Global Economic Development Leadership Awards. The decision, though, was not the best-case scenario for which many had been hoping--that is, confirmation that such incentives do not violate the US Constitution's Commerce Clause. Essentially, the Supreme Court said the plaintiffs did not have the standing to bring the case into the federal court system. In other words, a plaintiff that does have "standing" could try again.
"It was a good result--just not the best possible of results," says Kyle Sollie, partner in Dechert law firm and co-author of one of the Amicus Briefs filed in the DaimlerChrysler case. "The Supreme Court could have said, and didn't, that these types of credits are constitutional."
That said, the Supreme Court decision narrowed the field of potential plaintiffs considerably, Biggins says. "It was an important decision if only because it foreclosed a whole category of likely plaintiffs from filing suit," Biggins says. Possible plaintiffs that would have standing in this situation might include competing companies that are paying higher taxes than the new entrant, he suggests.Even this category of plaintiff might be too broad, Sollie adds. "It is conceivable that a competitor could sue but it would have to prove it was directly injured as a result of the credit."
Even if the firm was injured it still might not want to bring suit as it has likely been on the receiving end of such credits or expects to be at some point. "They may be unwilling to challenge the competitor's credit for fear of losing their own," Sollie says.In the near term, the Supreme Court's decision may well prompt some project sponsors to restart development plans. "We have had clients that have taken some states off of their short lists because that state's particular system of incentives was at greater risk under Cuno," Biggins says.In Cuno, an Ohio taxpayer and business owner challenged the $280 million worth of tax benefits state and Toledo city officials granted DaimlerChrysler to expand on the grounds it was a violation of the US Constitution's Commerce Clause. In vacating the Sixth Circuit Court decision, the Supreme Court noted that "state taxpayers have no standing under Article III to challenge state tax or spending decisions simply by virtue of their status as taxpayers."
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
