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ECONOMIC DEVELOPMENT AND THE DORMANT

COMMERCE CLAUSE: THE LESSONS OF CUNO

V. DAIMLERCHRYSLER AND ITS EFFECT ON

STATE TAXATION AFFECTING INTERSTATE

COMMERCE

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON THE CONSTITUTION

AND THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

MAY 24, 2005

Serial No. 109–27

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://www.house.gov/judiciary 

(II)

COMMITTEE ON THE JUDICIARY 

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman 

HENRY J. HYDE, Illinois 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

SPENCER BACHUS, Alabama 

BOB INGLIS, South Carolina 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

DARRELL ISSA, California 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

ADAM SMITH, Washington 

CHRIS VAN HOLLEN, Maryland

PHILIP G. KIKO, General Counsel-Chief of Staff 

PERRY H. APELBAUM, Minority Chief Counsel 

SUBCOMMITTEE ON THE CONSTITUTION

STEVE CHABOT, Ohio, Chairman

TRENT FRANKS, Arizona 

WILLIAM L. JENKINS, Tennessee 

SPENCER BACHUS, Alabama 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

STEVE KING, Iowa 

TOM FEENEY, Florida 

JERROLD NADLER, New York 

JOHN CONYERS, JR., Michigan 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

CHRIS VAN HOLLEN, Maryland

PAUL B. TAYLOR, Chief Counsel 

E. STEWART JEFFRIES, Counsel 

HILARY FUNK, Counsel 

DAVID LACHMANN, Minority Professional Staff Member 

(III)

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

CHRIS CANNON, Utah Chairman

HOWARD COBLE, North Carolina 

TRENT FRANKS, Arizona 

STEVE CHABOT, Ohio 

MARK GREEN, Wisconsin 

RANDY J. FORBES, Virginia 

LOUIE GOHMERT, Texas 

MELVIN L. WATT, North Carolina 

WILLIAM D. DELAHUNT, Massachusetts 

ADAM SMITH, Washington 

CHRIS VAN HOLLEN, Maryland 

JERROLD NADLER, New York

RAYMOND V. SMIETANKA, Chief Counsel 

SUSAN A. JENSEN, Counsel 

JAMES DALEY, Full Committee Counsel 

STEPHANIE MOORE, Minority Counsel 

(V)

C O N T E N T S 

MAY 24, 2005

OPENING STATEMENTS 

Page 

The Honorable Steve Chabot, a Representative in Congress from the State 

of Ohio, and Chairman, Subcommittee on the Constitution ............................ 1

The Honorable Chris Cannon, a Representative in Congress from the State 

of Utah, and Chairman, Subcommittee on Commercial and Administrative 

Law ........................................................................................................................ 3

The Honorable Jerrold Nadler, a Representative in Congress from the State 

of New York, and Ranking Member, Subcommittee on the Constitution ....... 8

WITNESSES 

The Honorable Bruce Johnson, Lieutenant Governor of the State of Ohio 

Oral Testimony ..................................................................................................... 5

Prepared Statement ............................................................................................. 7

Ms. Michele R. Kuhrt, Director of Taxes and Financial Administration, The 

Lincoln Electric Company, Cleveland, OH 

Oral Testimony ..................................................................................................... 8

Prepared Statement ............................................................................................. 11

Professor Walter Hellerstein, Francis Shackelford Distinguished Professor of 

Taxation and Law, University of Georgia School of Law 

Oral Testimony ..................................................................................................... 15

Prepared Statement ............................................................................................. 17

Professor Edward A. Zelinsky, Professor of Tax Law, Benjamin N. Cardozo 

School of Law, Yeshiva University, New York, NY 

Oral Testimony ..................................................................................................... 32

Prepared Statement ............................................................................................. 33

(1)

ECONOMIC DEVELOPMENT AND THE DORMANT COMMERCE CLAUSE: THE LESSONS 

OF CUNO V. DAIMLERCHRYSLER AND ITS 

EFFECT ON STATE TAXATION AFFECTING 

INTERSTATE COMMERCE 

TUESDAY, MAY 24, 2005

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON THE CONSTITUTION, COMMITTEE ON THE JUDICIARY, Washington, DC.

The Subcommittees met jointly, pursuant to notice, at 10:14 a.m., 

in Room 2141, Rayburn House Office Building, the Honorable Steve 

Chabot [Chair of the Subcommittee] presiding. 

Mr. CHABOT. The Committee will come to order. Good morning. 

This morning, the Subcommittees on the Constitution and Commercial and Administrative Law have convened to examine the status of State economic growth and development through tax incentive plans in light of the Sixth Circuit’s recent decision in Cuno v. 

DaimlerChrysler Inc.

I’d like to thank Chairman Cannon for agreeing to co-chair this 

hearing, and to Ranking Members Nadler and Watt for their support for an issue that has implications not just for Ohio, but for all 

50 States. 

And this morning is a joint hearing of the Subcommittee on the 

Constitution and the Subcommittee on Commercial and Administrative Law. 

I’d also like to thank and welcome our witnesses who are with 

us today. And I know we have one who’s still to arrive, but I know 

they had weather problems and will be coming from Ohio. We have 

an expert panel before us, and I know we’ve put this hearing together on short notice. And I’d like to thank all of you for making 

yourselves available. 

It’s especially nice to see fellow ‘‘Buckeyes’’ sitting before us. And 

thank you, Lieutenant Governor Johnson, who’s just entered 

here—and hope the flight wasn’t too bad from Ohio—for all of your 

hard work for the State of Ohio. 

And Mrs. Kuhrt—am I pronouncing it right? Is it Kuhrt? Kuhrt, 

okay—for traveling from our great State to help us better understand the importance of this issue to States and businesses, and to 

help identify the future role for Congress. 

In the universal quest to expand economic development, States 

are being asked to assume greater responsibility at a time when 

budget deficits, job growth, and quality of life concerns are paraVerDate 0ct 09 2002 10:49 Jul 12, 2005 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6601 G:\WORK\CONST\052405\21395.000 HJUD1 PsN: 21395
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mount. They are being asked to respond in an environment where 

fewer tools are available to them, and competition for business investment is not just limited to the 50 States, but the entire world. 

To stay competitive, States are increasingly turning to tax incentive packages, including investment tax credits and exemptions, as 

a strategy to encourage business investment. The Ohio Department 

of Development, like so many other State development offices, relies on investment programs to bring new businesses to areas, 

which in turn bring new revenue, add new jobs, maintain existing 

ones, and add immensely to the quality of community life. Approximately 40 other States have similar investment tax credits and 

rely on them to make their State more attractive to businesses. 

Investment tax incentives are used to attract or maintain business in a State. As Ms. Kuhrt will tell us later, these investment 

tax credits and incentives can also play a large role in business decisions to locate, expand, and remain in the United States. 

Last fall, the ability of States—specifically, the States of Ohio, 

Michigan, Tennessee, and Kentucky—to offer these incentives and 

remain competitive was dealt a significant blow by the United 

States Court of Appeals for the Sixth Circuit decision in Cuno v. 

DaimlerChrysler Inc., which found that portions of Ohio’s tax code 

were unconstitutional. 

At issue were Ohio’s manufacturing and equipment investment 

tax credit and a related property tax exemption. Although the Cuno

court upheld the property tax exemption, it found that the machinery and equipment investment tax credit discriminated against 

out-of-State activity, in violation of the so-called ‘‘Dormant Commerce Clause.’’ The Dormant Commerce Clause is a judicial construct designed 

to limit States’ ability to regulate interstate commerce, either expressly or implicitly, because such authority is vested in Congress 

by Article I, Section A, Clause 3 of the Constitution. 

Although the Sixth Circuit stayed its decision until the Supreme 

Court determines whether it will hear the case, it has left States 

uncertain as to what their options are for attracting businesses. 

For example, the Cuno court acknowledged that under Supreme 

Court precedent, if Ohio had chosen to directly subsidize 

DaimlerChrysler’s purchase of manufacturing equipment, it likely 

could have done so without violating the Dormant Commerce 

Clause; even though the net effect to DaimlerChrysler’s business 

would have been the same. 

Similarly, the Cuno court upheld Ohio’s personal property tax exemption against a Dormant Commerce Clause challenge, while 

striking down the investment tax credit; even though both taxes 

encouraged DaimlerChrysler to purchase manufacturing equipment 

and locate it in Ohio. 

I look forward to hearing from our two legal experts today, Professors Hellerstein and Zelinsky, to see if they can shed some light 

on the Dormant Commerce Clause distinction between discriminatory, and hence unconstitutional, tax incentives, and non-discriminatory, and thus lawful, tax incentives; as well as the distinction 

between tax incentives and direct subsidies. 

I also look forward to hearing from all of our witnesses views on 

potential legislative remedies; especially the proposal introduced by 

3

Representative Tiberi of Ohio that would allow States to continue 

to use the kind of investment tax credits that were invalidated in 

the Cuno decision. 

We all recognize that incentive packages for businesses can 

sometimes be controversial, and this hearing is not intended to 

lend a stamp of approval to every deal struck by a State or local 

government. However, we live in an increasingly competitive market for job creation that is no longer limited to the 50 States, but 

also includes foreign countries. States should have the ability to 

make their own decisions on these issues, in order to stay competitive. 

The Sixth Circuit’s Cuno decision takes Ohio, Michigan, Kentucky, and Tennessee out of the game, and places them at a distinct disadvantage, both at home and abroad. As an editorial from 

my home-town paper, the Cincinnati Inquirer, suggested yesterday, 

‘‘Congress should give more legal certainty to State tax incentives 

and let States craft tax codes as they think best to attract more 

jobs.’’ With that in mind, I think we all look forward to hearing from 

all of our witnesses today. And again, thank each and every one 

of you for being here today. And at this time, is there a Democrat— Mr. Scott, did you want to make a statement for your side? 

Mr. SCOTT. Mr. Chairman, I would ask unanimous consent that 

Mr. Nadler and Mr. Watt, when they arrive, be given the opportunity to make a statement. 

Mr. CHABOT. Okay. Without objection, so ordered. And the gentleman who is co-chairing this hearing, the Chairman of the Subcommittee on Commercial and Administrative Law, Chris Cannon 

from Utah, will now make an opening statement. 

Mr. CANNON. Thank you, Mr. Chairman. I am pleased to co-chair 

this hearing with my distinguished colleague from Ohio, Mr. 

Chabot, on a subject very important to my Subcommittee and one 

of increasing relevance in an era that has seen the rise in development of technology on a scale unimagined by our forebears. 

With the proliferation of international economic competition, the 

Congress must take an active role to ensure that the United States 

can and will meet the challenges of the modern world; but also 

bearing in mind that ours is a Federal system, and States can be 

our best partners in this critical task. 

When States take positive actions to foster economic development, they should be encouraged. When States take reasonable 

steps to lower the tax burden that might otherwise stifle economic 

development, they should likewise be encouraged. And when States 

recognize the importance of emerging technologies to their own economic growth and vitality, they should be encouraged in their efforts to develop those technologies. 

This year, the Subcommittee on Commercial and Administrative 

Law will consider similar proposals dealing with State taxation affecting interstate commerce, one of which will be the legislation relevant to this hearing. In the past, the Subcommittee has considered many issues concerning State taxation, including legislation 

establishing a moratorium on the imposition of access and discriminatory taxes upon the Internet, legislation defining the venue for 

purposes of State taxation based upon business activities, legislaVerDate 0ct 09 2002 10:49 Jul 12, 2005 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6601 G:\WORK\CONST\052405\21395.000 HJUD1 PsN: 21395
4

tion dealing with the taxation of non-residents working incidentally 

and intermittently in the taxing State, and legislation restricting 

State taxation of pension income paid to non-residents. 

Underpinning our deliberations has always been an appreciation 

that the Constitution grants authority over interstate commerce to 

Congress. And that could be no other way. If States were left to 

their own devices, the nation would long ago have failed, mired in 

a quagmire of economic and commercial division. 

The Founding Fathers granted constitutional authority to Congress over interstate commerce was virtually a self-evident proposition for our Federal nation to succeed. The wisdom of that proposition has been borne out by what we’ve accomplished as one of the 

most prosperous nations in the history of the world. 

But while Congress has the authority, it also necessarily has the 

discretion as to when and how best to exercise that authority. As 

I have noted, when States act consistent with sound principles to 

encourage positive economic development for the common good, the 

Congress should first listen and learn before presuming those 

States have reached beyond the essential self-evident proposition 

established by the Founding Fathers. 

I look forward to the testimony today and the analysis and guidance that such a distinguished panel can provide, and yield back 

the balance of my time. 

Mr. CHABOT. Thank you very much, Chairman Cannon. Are 

there any other Members on either side that would like to make 

an opening statement? 

[No response.] 

Mr. CHABOT. Okay. If not, we will go to the witnesses. And without objection, all Members will have five legislative days to submit 

additional materials for the hearing record. 

And I’d now like to introduce our very distinguished panel of witnesses here this morning. Our first witness is the Honorable Bruce 

Johnson, the Lieutenant Governor of the State of Ohio. Lieutenant 

Governor Johnson was appointed to that position by Governor Bob 

Taft in January 2005. 

Prior to becoming Lieutenant Governor, he served in the Ohio 

State Senate, where he became the youngest Chairman of a Committee in State history when he was appointed to chair the Senate 

Judiciary Committee. 

Lieutenant Governor Johnson is testifying today in his capacity 

as the Director of the Ohio Department of Development, where he 

is responsible for coordinating Ohio’s economic development efforts, 

including the administration of the investment tax credits at issue 

in Cuno v. DaimlerChrysler, Inc. And we welcome you here this 

morning, Lieutenant Governor. 

Our second witness is Michele Kuhrt, who is the Director of 

Taxes and Financial Administration for the Lincoln Electric Company of Cleveland, Ohio. Ms. Kuhrt is a graduate of Case Western 

Reserve University, also in Cleveland, Ohio, where she earned both 

a bachelor’s and master’s degree in accounting. 

In her capacity as Director of Taxes and Financial Administration, Ms. Kuhrt is responsible for assessing the impact of various 

State and municipal tax regimes in determining where Lincoln 

5

Electric should expand its operations. And we welcome you here 

this morning, Ms. Kuhrt. 

Our third witness is Professor William [sic] Hellerstein. Is that 

correct? 

Mr. HELLERSTEIN. Walter Hellerstein. 

Mr. CHABOT. Is it ‘‘stine’’ or ‘‘steen?’’ Mr. HELLERSTEIN. ‘‘Stine.’’ Mr. CHABOT. ‘‘Stine.’’ I apologize, professor. 

He is the Francis Shackelford Distinguished Professor of Taxation Law at the University of Georgia School of Law. Professor 

Hellerstein received his bachelor’s degree, magna cum laude, from 

Harvard College, and his law degree from the University of Chicago Law School, where he was editor-in-chief of the Law Review. 

Professor Hellerstein teaches State and local taxation, international taxation, and Federal income taxation, and has been published in numerous journals and law reviews. And we welcome you 

here this morning, professor. 

Our fourth and final witness is Professor Edwin [sic] A. Zelinsky, 

of the Benjamin N. Cardozo School of Law of the Yeshiva University in New York City, where he teaches tax law. Professor 

Zelinsky is a graduate of the Yale College, where he graduated 

summa cum laude; as well as the Yale Law School, where he received his law degree; and Yale graduate school, where he earned 

both a master’s degree and a master of philosophy in economics. 

Professor Zelinsky has been published in a number of scholarly 

journals, and has been a visiting professor at several distinguished 

law schools, including Yale Law School, Columbia Law School, and 

the NYU School of Law. 

Again, we want to welcome all of the witnesses, and we look forward to hearing from each one of you. And it’s the practice of this 

Committee to swear in all witnesses appearing before it, so if you 

would all please stand and raise your right hands. 

[Witnesses sworn.] 

Mr. CHABOT. Thank you very much, and you can be seated. And 

we’ll now hear from the first witness. And I might first of all make 

sure that you’re aware of our 5-minute rule. You’ve probably already been notified by our staff. But we have a lighting system 

there. The green light will be on for 4 minutes; a yellow light will 

let you know when there’s one remaining; and then the red light 

will come on. We won’t gavel you down immediately upon the red 

light coming on, but we’d ask that you wrap up your testimony in 

as short an order as possible. And then we’ll be questioning after 

that. 

So Lieutenant Governor Johnson, you’re recognized for 5 minutes. 

TESTIMONY OF THE HONORABLE BRUCE JOHNSON, 

LIEUTENANT GOVERNOR OF THE STATE OF OHIO 

Mr. JOHNSON. Thank you, Mr. Chairman, Chairman Chabot and 

Chairman Cannon, and to the other distinguished Members of this 

Subcommittee. My name is Bruce Johnson. I do serve as the Lieutenant Governor and the State Development Director of Ohio. 

I’m here today to talk specifically about economic development 

incentives, how they help grow Ohio’s economy, and the chilling efVerDate 0ct 09 2002 10:49 Jul 12, 2005 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6601 G:\WORK\CONST\052405\21395.000 HJUD1 PsN: 21395
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fect of recent court—the recent court case has on business development in Ohio. 

I am pleased to be the development director. Ohio’s access to 

North American markets, our skilled and dedicated workforce, and 

our history of innovation provide great selling points as we seek to 

attract new business to our State, and grow the business that is 

already located there. 

However, the uncertainty created by a recent Federal court decision has made my job more difficult. In September, the U.S. Court 

of Appeals for the Sixth Circuit struck down one of Ohio’s most 

popular incentive programs, the Ohio Manufacturing Machinery 

and Equipment Tax Credit. The M&E tax credit, as we call it, encourages companies to invest in new machinery and equipment by 

offering them a break on their corporate franchise tax bill. 

The case came about after a group of taxpayers opposed our involvement in a 1998 expansion of DaimlerChrysler’s Jeep facility in 

Toledo. In order to protect more than 4,000 jobs, we offered this 

$1.2 billion expansion project an incentive package that included 

up to $96 million in M&E tax credits. In September 2004, in what 

has become known as the Cuno case, the Sixth Circuit Court found 

that the M&E tax credit portion of our incentive package unconstitutional. 

We live in an increasingly global marketplace, where a company’s very survival depends on its ability to be lean and efficient. 

This market demands that I be able to offer incentives in order for 

Ohio to compete against its regional neighbors; not only with other 

States, but also countries like Canada and Mexico. Case in point: 

Ontario, Canada, lists Ohio as one of its chief competitors, and offers at least nine tax incentives to encourage investment. You can 

find them on their website. 

Last year, my department completed projects with more than 193 

companies committed to locating or expanding in our State. These 

companies committed to creating or retaining 53,000 jobs, with an 

average hourly wage of approximately $17, representing nearly 

$3.4 billion in combined investment in our State. In all, we offered 

these projects more than $200 million in various incentives, ranging from tax credits to training grants. 

We believe the flexibility to put together aggressive, customized 

incentive packages is critical to securing these projects. Take for 

example projects like Lab One’s $18.4 million expansion of its laboratory facilities in Cincinnati, or the United States Enrichment 

Corporation’s decision to invest $1.1 billion creating 500 high-paying jobs in rural southern Ohio. Ohio won out over facilities in Asia 

and Mexico when the Whirlpool Corporation chose to invest $143 

million in several Ohio facilities. 

The M&E tax credit, available to any company investing in new 

manufacturing equipment in Ohio, is an important incentive. Since 

the credit’s inception in 1995, the department has received more 

than 18,000 filings claiming eligibility for the credit. 

These filings show that companies invested $34.2 billion in new 

machinery and equipment, making them eligible for more than $2 

billion in credits through our system. These investments are critical to the economic prosperity of Ohio because, quite simply, in 

manufacturing today jobs follow investments. 

7

Is the availability of a single tax credit alone going to bring more 

jobs to Ohio? Probably not. But a State’s right to develop packages 

may very well be a factor that tips the scale in favor of one investment over another. 

In addition, I believe there is a concern that the court’s ruling 

could easily lead to questions on other types of incentives; not only 

in Ohio, but elsewhere, as well. Jay Biggins, who is a national expert on incentives, says that, ‘‘The implications of Cuno will spread 

nationwide,’’ and also, ‘‘Some of our clients have already decided to 

eliminate jurisdictions from the short list because their incentive 

programs could be at risk under the Cuno decision.’’ Simply put, Ohio’s ability to secure economic prosperity for our 

citizens is being hampered. And therein lies the bigger issue. I 

firmly believe that it’s a State’s right, a State’s duty, to pursue 

prosperity for its citizens. And by striking down the M&E tax credit, the Sixth Circuit has infringed upon that right. I believe the 

court has come to the wrong conclusion in attempting to interpret 

congressional silence on this matter. The good news is that the 

issue does not need to be—continue to remain dormant. 

Congress has the authority to weigh in on the matter, and I 

would encourage this panel to do so. I appreciate the Chairman’s 

supportive comments. To help secure the prosperity of Ohio’s citizens and the citizens of all States, legislation should be enacted 

that returns the power to regulate these credits to the States. 

Thank you very much, Mr. Chairman. 

[The prepared statement of Mr. Johnson follows:]

PREPARED STATEMENT OF BRUCE JOHNSON

Good Morning. My name is Bruce Johnson and I serve as Lt. Governor and State 

Development Director of Ohio. I am here today to talk specifically about economic 

development incentives, how they help grow Ohio’s economy and the chilling effect 

a recent court case has on business. 

I am blessed to be the Development Director. Ohio’s access to the North American 

market, our skilled and dedicated workforce, and our history of innovation provide 

great selling points as we seek to attract new business to our state. 

However, the uncertainty created by a recent federal court decision has made my 

job more difficult. In September, the U.S. Court of Appeals for the Sixth Circuit 

struck down one of Ohio’s most popular incentive programs, the Ohio Manufacturing 

Machinery and Equipment Tax credit. The M&E tax credit, as we call it, encourages 

companies to invest in new machinery and equipment by offering them a break on 

their corporate franchise tax bill. 

The case came about after a group of taxpayers opposed our involvement in a 

1998 expansion of DaimlerChrysler’s Jeep facility in Toledo. In order to protect more than 4,000 jobs, we offered this $1.2 billion expansion project an incentive package 

that included up to $96 million in M&E tax credits. In September 2004, in what 

has become known as the Cuno case, the Sixth Circuit Court found the M&E tax 

credit portion of our incentive package unconstitutional. 

We live in an increasingly global market place, where a company’s very survival 

depends on its ability to be lean and efficient. This market demands that I be able 

to offer incentives in order for Ohio to compete, not only with other states but also 

with countries like Canada and Mexico. Case in point-Ontario, which lists Ohio as 

a chief competitor, offers at least nine tax incentives to encourage investment. 

(http://www.2ontario.com/software/brochures/Taxation.asp) 

Last year my department completed projects with more than 193 companies committed to locating or expanding in Ohio. These companies committed to creating or 

retaining more than 53,000 jobs, with an average hourly wage of $17, representing 

a nearly $3.4 billion combined investment in Ohio. In all, we offered these projects 

more than ($200) million in various incentives, ranging from tax credits to training 

grants. 

We believe the flexibility to put together aggressive, customized incentive packages was critical to securing these projects. Take, for example, projects like 

8

LabOne’s $18.4 million expansion of its laboratory facilities in Cincinnati or the 

United States Enrichment Corporation’s decision to invest $1.1 billion to create 500 

high-paying jobs in rural, Southern Ohio. And Ohio won out over facilities in Asia 

and Mexico when the Whirlpool Corporation chose to invest $143 million in several 

Ohio facilities. 

The M&E tax credit, available to ANY company investing in new manufacturing 

equipment in Ohio, is an important incentive. Since the credit’s inception in 1995, 

the Ohio Department of Development has received more than 18,000 filings claiming eligibility for the credit. These filings show that companies invested $34.2 billion 

in new machinery and equipment, making them eligible for more than $2 billion in 

credits. These investments are critical to the economic prosperity of Ohio because, 

quite simply, jobs follow investments. 

Is the availability of a single tax credit alone going to bring more jobs to Ohio? 

Probably not. But a state’s right to develop incentive packages may very well be the 

factor that tips the scale. In addition, I believe there is concern that the court’s ruling could easily lead to questions on other types of tax incentives, not only in Ohio, 

but elsewhere as well. Jay C. Biggins, national expert in incentives states, ‘‘the implications of Cuno also will spread nationwide,’’ and also, quote ‘‘Some of our clients 

already have decided to eliminate jurisdictions from the ‘short list’ because their incentives programs could be at risk under Cuno.’’

Simply put, Ohio’s ability to secure economic prosperity for our citizens is being 

hampered. And therein lies the bigger issue. I firmly believe that it is a state’s right, 

and duty, to pursue prosperity for its citizens, and by striking down the M&E Tax 

Credit, the Sixth Circuit has infringed upon that right. I believe the court has come 

to the wrong conclusion in attempting to interpret Congressional silence on this 

matter. The good news is that this issue does not need to continue to remain dormant. 

Congress has the authority to weigh in on the matter and I encourage this panel 

to do so. To help secure the prosperity of Ohio’s citizens, and the citizens of all 

states, legislation must be enacted that returns the power to regulate tax credits 

to the states.

Mr. CHABOT. Thank you very much, Lieutenant Governor Johnson. And before we get to our second witness, we will recognize the 

Ranking Member of the Subcommittee on the Constitution, Congressman Nadler, for the purpose of making an opening statement. 

Mr. NADLER. A very brief opening statement. Thank you, Mr. 

Chairman. I want to welcome the panel, and especially Professor 

Zelinsky, who teaches in my district. 

This issue is especially vexing to Members of this Committee 

who are trying to make sense of the current state of the law. As 

the witnesses made clear, there is nothing clear about the court’s 

current jurisprudence. Each one of us has been involved in local 

matters for years, and we all have strong views on the advisability 

of various business tax incentives—various business incentives, including tax incentives. That’s probably a debate for another day. 

I hope that our witnesses will be able to shed some light on the 

current state of the law, such as it is, and the options that Congress may have in considering what actions, if any, to take. 

I told you the opening statement would be brief. That’s it. Thank 

you, Mr. Chairman. 

Mr. CHABOT. Thank you very much, Mr. Nadler. 

Ms. Kuhrt, you’re recognized for 5 minutes. 

TESTIMONY OF MICHELE R. KUHRT, DIRECTOR OF TAXES AND 

FINANCIAL ADMINISTRATION, THE LINCOLN ELECTRIC 

COMPANY, CLEVELAND, OH 

Ms. KUHRT. Thank you. Good morning Chairmen Cannon and 

Chabot and Members of the Subcommittees. I’m Michele Kuhrt, Director of Taxes and Financial Administration at the Lincoln Electric Company in Cleveland, Ohio. I’m pleased today to have the opVerDate 0ct 09 2002 10:49 Jul 12, 2005 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6601 G:\WORK\CONST\052405\21395.000 HJUD1 PsN: 21395
9

portunity to testify about my company’s experience with the Ohio 

manufacturer’s tax credit and how it’s impacted our business planning. 

First, let me say, for those of you when you hear the name ‘‘Lincoln Electric,’’ we’re not a utility company. Lincoln Electric is a 

110-year-old Cleveland-based manufacturing company, and the 

world leader in design, development, and manufacturing of arc 

welding and cutting products. Our major operations and headquarters are in Cleveland, Ohio. We employ over 3,200 people. We 

also have manufacturing sites in California and Georgia, and 26 

international manufacturing locations. 

Lincoln has a strong track record of providing excellent-paying, 

secure manufacturing jobs for generations of workers in the Cleveland area. Unlike many manufacturers, Lincoln Electric has never 

laid off an employee. Our guaranteed lifetime employment policy 

provides that after 3 years of continuous employment our workers 

can rest assured that the tides of the business cycle will not leave 

them without work. Our piece-work and company-wide bonus programs allow Lincoln employees to take a great deal of their personal fortune into their own hands. This incentive management 

philosophy has been the basis of a number of business studies and 

one of the most widely used studies at the Harvard Business 

School. 

The Ohio manufacturer’s tax credit has played an important role 

in determining where Lincoln deploys its capital. Without this credit, our investments in Ohio certainly would have been less. Since 

1995, when the Ohio manufacturer’s credit began, Lincoln’s capital 

expenditures in Ohio have exceeded a quarter of a billion dollars. 

In recent years, we have added significant manufacturing capacity, physical expansion to our buildings, knocked down walls, added 

space to our plants in Ohio, including new lines to manufacture 

welding equipment, consumables, filler rods, flux cored welding 

wire, and expanded our steel processing abilities. 

Each of our investment decisions is evaluated based on a number 

of return-on-investment criteria; taxes being one of them. In many 

analyses we prepare, taxes are a significant and sometimes deciding factor on where we locate our capital. The Ohio manufacturing 

credit is an important benefit to Lincoln Electric, and one that has 

tipped the scales in many of our investment decisions. 

Another thing to think about is that the global economy also 

forces us to consider investment opportunities outside the U.S., 

particularly in low-cost manufacturing locations. Many of these locations offer exceptional tax incentives, low wages, and no litigation costs. For a company with a culture like Lincoln Electric, our 

preference is to create jobs in the U.S. Frankly, we excel at manufacturing here. However, the economic factors present in many of 

the other jurisdictions can make an investment decision to locate 

outside the U.S. overwhelming. 

Keep in mind, too, that from the State of Ohio’s perspective, I 

think the Ohio manufacturer’s credit is ingenious from the State’s 

perspective, because Lincoln investments in Ohio actually create 

revenue as well as new jobs in Ohio. Our Ohio investments increase the State’s revenue from personal property tax, corporate inVerDate 0ct 09 2002 10:49 Jul 12, 2005 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6601 G:\WORK\CONST\052405\21395.000 HJUD1 PsN: 21395
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come tax, and what I believe most significantly is the individual income taxes that those jobs create when those employees are paid. 

In this respect, the State’s tax incentives are by no means a giveaway. They’re a calculated, wise, one-time investment made by the 

State, with an unusually high rate of return, given the recurring 

nature of the tax revenues that they generate. 

For example, some of the expansions I spoke of earlier allowed 

Lincoln to hire 481 new employees in Ohio. It added payroll of $42 

million year over year in Ohio. And I estimated, in using some very 

conservative calculations, a recurring individual income tax revenue of a million dollars for the State of Ohio. 

In return, Ohio gave Lincoln Electric a $250,000-a-year credit for 

7 years—not a bad deal for Ohio. In the end, Ohio made a very 

wise choice in investing in Lincoln Electric. And remember, this 

does also not include other income taxes and personal property 

taxes that the State of Ohio received, as well as the municipal income tax for the city of Euclid, at 2.85 percent, that that municipality received on those wages, as well. 

As we speak, Lincoln is planning a $20 million expansion of our 

consumable manufacturing capabilities, and evaluating locations in 

Ohio, Mexico, and Canada. The tax liability associated with operating in each of these jurisdictions is vastly different. And we currently cannot rely on the manufacturing credit in Ohio, given the 

Cuno decision. 

We do like doing business in the U.S., and in Ohio. All other economic factors being close, we prefer it. But we can’t afford to stay 

without the cooperation of Federal, State, and local governments. 

Our jurisdictions—other jurisdictions are in competition for corporate investment dollars, and these governments see our weaknesses and have been aggressive in pursuing those investment dollars outside the U.S. 

State tax incentives like the Ohio manufacturer’s credit are in 

many cases a critical factor for companies like Lincoln Electric to 

construct new facilities, buy equipment, and hire additional workers. 

Thank you for your interest in this issue and supporting legislation that would ensure that States can continue to provide tax relief that spurs economic development. Thank you again, and I look 

forward to any questions you might have. 

[The prepared statement of Ms. Kuhrt follows:]

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PREPARED STATEMENT OF MICHELE R. KUHRT


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1See Walter Hellerstein and Dan T. Coenen, Commerce Clause Restraints on State Business 

Development Incentives, 31 Cornell L. Rev. 789–878 (1996). 

Mr. CHABOT. Thank you very much; appreciate your testimony. 

Professor Hellerstein, you’re recognized for 5 minutes. 

TESTIMONY OF PROFESSOR WALTER HELLERSTEIN, 

UNIVERSITY OF GEORGIA SCHOOL OF LAW 

Mr. HELLERSTEIN. Thank you, Mr. Chairman. I’m honored by the 

Chairman’s and the Ranking Member’s invitation to testify, and 

I’m really grateful to the Subcommittee. 

Mr. CHABOT. Could you pull the mike a little bit closer? Thank 

you. 

Mr. HELLERSTEIN. Yes, I was saying that I’m grateful for the 

Chairman’s invitations; honored by them. I also thank the Committee for holding a hearing on this very, very important topic of 

the viability of State tax incentives. 

My testimony is devoted to three questions. First, what was the 

state of Dormant Commerce Clause law prior to Cuno? Was Cuno

an aberration? And what can Congress do about the present state 

of affairs? 

On the state of the Dormant Commerce Clause before Cuno, the 

fact of the matter is that there was a substantial body of law that 

invalidated many tax provisions that, broadly speaking, would be 

considered to be tax incentives. 

When New York wanted to attract more sales to the New York 

Stock Exchange, they wanted to offer it at a lower rate to take it 

to the exchange. The court said, ‘‘That’s unconstitutional.’’ When 

Ohio wanted to develop its ethanol industry and give a credit for 

the use of Ohio-produced ethanol, the court struck that down as 

unconstitutional. 

When New York and Wisconsin said, ‘‘Look, if you invest in New 

York and Wisconsin, we’ll give you the accelerated depreciation, not 

if you invest somewhere else,’’ kind of analogous to Cuno, courts—

not the Supreme Court, but lower courts in New York and Wisconsin—struck that down. 

So fair to say, we have a broad body of law out there that was 

invalidating provisions that people would have regarded as State 

tax credits. 

That brings me to Cuno. Was Cuno an aberration? I have to say, 

‘‘No.’’ I wrote an article 1 which the court cited to reach its decision. 

So I think that Cuno really fits into the preexisting doctrine. 

Is my way the only way of looking at the doctrine? Absolutely 

not. Professor Zelinsky here has a view that would, I think, suggest 

that most incentives are constitutional. Professor Enrich, who litigated Cuno, has the view that says that all of them are unconstitutional. We kind of came down in the middle. 

But the point about which all of us can agree is that the law is 

a mess. It’s indeterminate. And I think it’s fair to say that even the 

court calls it a quagmire. 

That brings me to the third question, which I think is the most 

important one for this panel: What can Congress do about this 

mess? First, you can do nothing. If you do nothing, what’s going to 

happen? There’ll be, I think, years, decades, maybe centuries of unVerDate 0ct 09 2002 10:49 Jul 12, 2005 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6601 G:\WORK\CONST\052405\21395.000 HJUD1 PsN: 21395
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certainty, as credits get litigated on this piecemeal basis. Some will 

be upheld; some will be sustained; some struck down. But I think 

we’ll have continuing uncertainty. 

If the court denies certiorari in Cuno, I think matters will be 

even worse. As we’ve already heard testimony, Ohio and Tennessee 

and Michigan and Kentucky are now laboring under the yoke of 

Cuno; where maybe in other jurisdictions they’ll say, ‘‘Gee, this 

stuff is okay.’’ So you’ll have disparate laws in different States. 

Even if the court grants cert in Cuno, really, the court decides 

narrow cases. It limits it to the facts. It leaves to another day other 

issues. So even if they resolve Cuno and bring some relief—or 

maybe not relief—to the taxpayers, depending on what they decide, 

it’s not going to solve the broader problem. 

So Congress could do a third—Congress may not do anything. 

Maybe you’ll legislate narrowly. That’s a second option for Congress, instead of doing nothing. 

Why not just reverse Cuno, or if you like Cuno, make it the law 

of the land; but at least make it clear. That would, I think, have 

some benefit, in that it would clarify the uncertainty. The problem 

is, as I’ve suggested earlier, there’s a broad range of incentives out 

there, not just the ITC, the investment tax credit in Ohio, that I 

think need attention because the uncertainty exists for all of them. 

So it seems to me there’s a third option, which is for Congress 

to legislate more broadly, to clarify this area. And I think, frankly, 

the Voinovich and Tiberi bills really do that. What they do is 

they—Congress is in effect saying, ‘‘There’s a certain class of incentives that are acceptable.’’ It makes the law clear. 

I think at the same time, it’s important for Congress not—for 

Congress to preserve, or at least not to disturb, the core principle 

of non-discrimination. I don’t think anybody wants to start a new 

set of trade wars. And again, I think the Voinovich and Tiberi bills 

do that. 

They don’t—they leave undisturbed, I think, some types of tax 

provisions that I think most of us would regard as raising serious 

constitutional concerns. Georgia shouldn’t be able to say that, 

‘‘We’re only going to, you know, tax South Carolina peanuts, but 

not Georgia peanuts.’’ So some things I think should be left undisturbed. 

But I think Congress has a role here to clear up the uncertainty; 

not to abandon the non-discrimination principle altogether, but to 

make the law clear, to make it understandable for everyone. 

If Congress does nothing, I think you’re going to leave it to taxpayers, tax administrators, State legislatures, simply to speculate 

as to whether, on a case-by-case basis, some court is going to say 

that this provision is invalid because it, to use the court’s terms, 

forecloses tax-neutral decisions; or that this provision is okay because it’s simply an appropriate structuring of State tax law to attract business to the State. 

I will be happy to answer questions when the time comes. Thank 

you. 

[The prepared statement of Mr. Hellerstein follows:]

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PREPARED STATEMENT OF WALTER HELLERSTEIN


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Mr. CHABOT. Thank you very much. 

And finally, Professor Zelinsky, you’re recognized for 5 minutes. 

TESTIMONY OF EDWARD A ZELINSKY, BENJAMIN N. CARDOZO 

SCHOOL OF LAW, YESHIVA UNIVERSITY, NEW YORK, NY 

Mr. ZELINSKY. Thank you, Mr. Chairman. I’m grateful for the opportunity to speak with you this morning concerning a topic which 

has been of great importance both to Professor Hellerstein and myself, and that is the relationship of State tax policies to the Dormant Commerce Clause. 

The most compelling conclusion I can share with you today is the 

importance of keeping distinct three separate concerns. That is to 

say, the constitutionality of particular State tax policies; the economic wisdom of those policies; and the propriety of congressional 

intervention. 

Consider in the context of the first issue, constitutionality, two 

recent controversial decisions: the Cuno decision of which there has 

been much discussion; as well as the decision of the New York 

Court of Appeals in my own case, in which I challenged under the 

Dormant Commerce Clause New York’s policy of taxing non-resident telecommuters on the days they work at home throughout the 

nation. I suggest that both of these cases were decided wrongly, 

under the Commerce Clause. 

To take Cuno first, there’s no principled basis for distinguishing 

the investment tax credit struck by the Sixth Circuit from other 

routine tax State spending policies and programs, including the 

property tax relief which the appeals court sustained. These and 

other anomalies suggest to me that Cuno is incorrectly decided. 

Equally troubling is the conclusion of the New York courts under 

the Commerce Clause that New York can tax non-residents, thousands of us, on days when we never set foot in New York. 

Now, it’s important to distinguish the constitutional issue from 

the wisdom of those policies. I have grave reservations, as apparently most of the rest of the panelists do, about Cuno as a matter 

of constitutional law. But I have equally grave reservations as a 

matter of tax policy about many of the targeted incentives at issue 

in Cuno. And I think that’s a distinction that’s important for discussion going forward. 

In contrast, I think New York’s employer convenience rule is 

both unwise for New York and the country as a whole, as well as 

unconstitutional. 

And there is finally the question of what Congress should do 

under the Commerce Clause. And allow me to suggest three nonexclusive criteria for congressional intervention. 

First, Federal legislation under the Commerce Clause is particularly appropriate when States seek unfairly to tax non-voters. For 

example, I have no representation in the New York general assembly. And for that reason, I strongly support the legislation sponsored by Senator Dodd and Representative Shays which would preclude any State from taxing a non-resident telecommuter on the 

day he works at home. 

Second, Congress should exercise its Commerce Clause authority 

when conflicting tax policies impede the interstate mobility of persons, goods, and services. The reality is, the Dormant Commerce 

33

1 Cuno v. DaimlerChrysler, Inc., 386 F.3d 738 (6th cir. 2004). 2Zelinsky v. Tax Appeals Tribunal of the State of New York, 1 N.Y.3d 85, 769 N.Y.S.2d 464 

(2003), cert. den., 541 U.S. 1009 (2004). 3For more detailed elaboration of these themes, see Edward A. Zelinsky, Cuno v. 

DaimlerChrysler: A Critique, 34 STATE TAX NOTES 37 (October 4, 2004), reprinted in 105 Tax 

Notes 225 (October 11, 2004). For some pre-Cuno thoughts along these lines, see Edward A. 

Zelinsky, Restoring Politics to the Commerce Clause: The Case for Abandoning The Dormant 

Commerce Clause Prohibition on Discriminatory Taxation, 29 OHIO NORTHERN UNIV. L. REV. 29 

(2003). 

Clause has been one of history’s great successes, creating a common market out of this vast continent we are blessed with. And I 

think that the Dodd-Shays legislation satisfies this criteria, also. 

Finally, I think States, in the interest of federalism, should be 

permitted to pursue tax policies which impact solely within that 

State. The Commerce Clause is not, and should not be, understood 

as a barrier to a State implementing tax policies, whatever their 

wisdom may or may not be, as long as those policies impact only 

within that State. And for that reason, I am sympathetic to the effort to overturn Cuno legislatively, even though I am unsympathetic to most State tax incentives. 

Again, I appreciate the opportunity to discuss with you the relationship of State tax policy and the Dormant Commerce Clause, a 

topic which will, with increasing frequency, find itself on Congress’

agenda in the years ahead. **

[The prepared statement of Mr. Zelinsky follows:]

PREPARED STATEMENT OF EDWARD A. ZELINSKY

I am grateful for this opportunity to discuss the relationship between state tax 

policies and the dormant Commerce Clause. As someone who has written, taught 

and thought about that relationship, I am both surprised and pleased by the sudden 

interest in this subject. That interest reflects a variety of causes: the proliferation 

of state tax incentives; the growth of interstate telecommuting; several controversial 

court decisions on these subjects; a growing recognition that ultimately the Commerce Clause is a grant of authority to Congress and that, in an increasingly nationalized economy, that authority is likely to be invoked more and more frequently. 

The most compelling conclusion I can share with you today is the importance of 

keeping separate three distinct concerns: the constitutionality of particular state tax 

policies, the economic wisdom of those policies, and the propriety of federal legislation. 

Consider in the context of constitutionality two of the recent and more controversial dormant Commerce Clause decisions, the decision of the Sixth Circuit in Cuno 1

and the decision of the New York Court of Appeals in my own case 2 challenging 

the constitutionality of New York’s ‘‘convenience of the employer’’ doctrine for taxing 

nonresident telecommuters on the days they work at their out-of-state homes. 

I suggest that both of these cases were decided wrongly. To take Cuno first, there 

is no principled basis for distinguishing the investment tax credit struck by the 

Sixth Circuit from other, routine tax and spending programs of state governments 

including the property tax relief which the appeals court sustained. The Sixth Circuit understands the dormant Commerce Clause as denying DaimlerChrysler an 

Ohio investment tax credit because of DaimlerChrysler’s pre-existing Ohio plant but 

as permitting a credit for new investment to an otherwise identical competitor without an pre-existing facility in Ohio. In a similar vein, the Cuno decision indicates 

that if Ohio, instead of providing a tax credit, gives DaimlerChrysler a check equal 

in value to the credit, such a direct subsidy passes Commerce Clause muster even 

though an economically identical income tax credit does not. 

These and other anomalies suggest to me that Cuno is doctrinally unsound. 3

Equally troubling is the conclusion of the New York courts that, notwithstanding 

the Commerce and Due Process Clauses, New York can tax nonresidents such as 

me on the days we work at home. New York thus taxes me (as well as thousands 

of other telecommuters) on days we never set foot in New York. Most recently, the 

New York Court of Appeals upheld New York’s income taxation of a telecommuter 

34

4 Huckaby v. Tax Appeals Tribunal, 2005 N.Y. LEXIS 497 (March 29, 2005). 5See, e.g., Walter Hellerstein, Reconsidering the Constitutionality of the ‘‘Convenience of the 

Employer’’ Doctrine, 2003 STATE TAX NOTES TODAY 91–3 (May 12, 2003); Nicole Belson Goluboff, 

Put The Telecommuter Tax Fairness Act in the Passing Lane, 2004 STATE TAX NOTES TODAY

211–2 (October 6, 2004). 

for the days he worked at home in Nashville, Tennessee. 4 It strikes me and virtually all of the prominent commentators that New York, when it taxes thousands 

of nonresidents on days they work at their out-of-state homes, violates the rule of 

apportionment which, over the years, has become central to our understanding of 

the dormant Commerce Clause. 5

It is important to distinguish the constitutionality of state tax policies from the 

wisdom of those policies. I have grave reservations, as a matter of constitutional 

law, about the Cuno decision. But I have equally grave reservations, as a matter 

of tax policy, about the kind of targeted tax incentives at issue in Cuno. There is 

much to commend tax competition benefitting taxpayers generally. The pressure to 

keep taxes reasonable and efficient for taxpayers in general imposes an important 

discipline on political decisionmakers and helps taxpayers and voters to monitor, 

compare and evaluate the performance of state and local governments. 

On the other hand, I am skeptical of the kind of targeted tax incentives Ohio gave 

to DaimlerChrysler. I am doubtful of this kind of market-manipulating industrial 

policy whether pursued by the federal government, by pension trustees or by states 

and localities. In short, the fact that tax incentives are constitutional does not make 

them wise. 

In contrast, New York’s employer convenience doctrine is as unwise as it is unconstitutional. New York now taxes individuals throughout the nation when they work 

at home for New York employers. The reported cases indicate that New York has 

assessed nonresident income taxes against individuals working at home as far from 

New York as Maine, Florida, New Hampshire and South Carolina. At a time when 

we should be encouraging telecommuting, New York’s overreaching, even if it were 

constitutional, is bad tax policy for the nation’s economy. 

There is, finally, the question when Congress should intervene, using its Commerce Clause authority to constrain state tax policies. Allow me to suggest three, 

nonexclusive criteria for congressional intervention: First, federal legislation under 

the Commerce Clause is particularly appropriate when states seek to export unfairly 

their tax burdens to nonvoters. As a Connecticut resident, I have no vote for or representation in the New York legislature. Since I have no political voice in the formation of New York’s tax policies aimed at me, it is appropriate for Congress, where 

I am represented, to intervene on my behalf. 

For that reason, I strongly support the legislation sponsored by Senator Dodd and 

Representative Shays, the Telecommuter Tax Fairness Act, which would preclude 

any state from taxing a nonresident telecommuter on the day he works at home. 

Second, Congress should exercise its Commerce Clause authority when conflicting 

tax policies impede the interstate mobility of persons, goods and services, thereby 

hindering the continental common market which is the U.S. economy. Again, I think 

the Dodd-Shays legislation satisfies this criterion also. 

Finally, a state, in the name of federalism, should be permitted to pursue tax policies which impact solely within that single state. The Commerce Clause is not a barrier to a state implementing tax policies however misguided as long as those policies 

impact only within that state. For that reason, I am sympathetic to the effort to 

overturn Cuno legislatively even though I am unsympathetic to most state tax incentives. 

Again, I appreciate the opportunity to discuss the relationship of state tax policy 

to the dormant Commerce Clause, a topic which will, with increasingly frequency, 

find itself on Congress’ agenda in the years ahead.

Mr. CHABOT. Thank you very much, Professor. I want to thank 

all the witnesses for keeping very close to the 5 minutes, as well. 

We appreciate that very much. 

We’re—I might note that I’ve been informed that we expect a 

vote on the floor at approximately 11. It’ll only be one vote, so we 

may be—that may break into our time here. 

But I now recognize myself for 5 minutes, in order to ask questions. And I’ll begin with you, Lieutenant Governor Johnson, if I 

can. In your written testimony, you stated that the ‘‘flexibility to 

put together aggressive customized incentive packages was critical’’

35

to the 193 projects that Ohio landed last year. Could you please describe the process that your office uses for putting together these 

packages? 

Mr. JOHNSON. Well, thank you, Mr. Chairman, for the question. 

Unfortunately, it does vary, depending on how the contact is made. 

Sometimes the contact begins at the local level, and there is a discussion with the local officials before the State gets involved. But 

generally, what happens is the State has a series of tools to encourage investment. 

In 100 percent of the cases in which we encourage investment, 

the firm has a choice of location. In other words, we don’t at the 

State level choose to subsidize retail outlets that, if they’re going 

to serve the greater Cincinnati marketplace, they must do so from 

the greater Cincinnati marketplace. 

We tend to have an unusually large number of these incentives 

in the manufacturing industry because manufacturers—because a 

large percentage of their marketplace is outside the State of Ohio, 

whom they’re selling to. They have choice of location. They could 

locate either in Indiana, Illinois—China, or Taiwan, for that matter. 

So those tend to be the types of firms. So we make sure that 

they’re eligible. Then we utilize job creation tax credits; which, if 

you could follow the logic in the Cuno case, you might come to the 

conclusion that that tax credit was invalid, as well. That encourages firms to make investments and add Ohio employees. And we 

credit back to the company a portion of the income tax that is paid 

to the State of Ohio as a result of that investment over a period 

of time. 

So what we do is we evaluate how much additional payroll is 

coming to the State, how much additional property investment is 

coming to the State. And then we do a mathematic qualification, 

based upon the various tools. 

We have a number of tools, including direct incentives and including direct investment ourselves in infrastructure. And so we 

work with the firm to determine what is appropriate for the facility 

in the location, and then we make an evaluation on how much 

money the State actually ought to put in. 

In no case does the State not demand a return on its investment. 

We do tend to assume that the investment wouldn’t otherwise happen. 

In the case of the M&E tax credit, however, it’s not just in incentive packages. This particular credit is available to all qualifying 

investments in the State, whether they come to the Ohio Department of Development seeking an incentive for a specific investment 

or not. So to the extent that they qualified, they had investments 

that exceeded their previous 3-year average, they would be eligible 

for that particular investment incentive. 

Mr. CHABOT. Okay. Thank you very much. 

Ms. Kuhrt, let me turn to you, if I can, now. Lincoln Electric has 

operations in, as you mentioned, Ohio and California and Georgia 

and 26, I believe, other countries you said. Have you witnessed any 

so-called race to the bottom among States when you consider building a new operation? Do any of these States offer, in your estimation, tax incentives that do not make economic sense based on 

36

the total investment they bring to an area, including the new jobs 

that they create? 

Ms. KUHRT. Actually, I’d say that most of the State incentives 

that we see are modest, particularly relative to the international 

incentives that are offered. The international incentives might be 

considered a race to the bottom but—however, those are in jurisdictions that are in developing countries, and certainly have many 

years to recoup their investment. But the States in particular, no, 

not at all. 

Mr. CHABOT. Thank you. Professor Hellerstein, I’ve only got 1 

minute left, so let me move kind of quickly. In your written testimony, you state that the negative, or Dormant Commerce Clause— and I think you said this here, too—‘‘is a mess; albeit a mess that 

keeps many lawyers and law professors busy.’’ In light of the Cuno decision and the Supreme Court’s other Dormant Commerce Clause jurisprudence, could you as an attorney 

tell Lieutenant Governor Johnson what sorts of programs that the 

State of Ohio is allowed to implement in order to attract business 

and jobs to the States? 

Mr. HELLERSTEIN. I could only do so with great difficulty, and 

with the usual caveats that lawyers make. I think you’re right. I 

think it would be—particularly now after Cuno, it would be extremely difficult. We know some things are okay; if Ohio simply 

wants to pay money, a flat subsidy. But other than a flat subsidy, 

using the tax system, especially in light of Cuno, especially in light 

of the disparate views across the table of what the Commerce 

Clause means, I think it would be extremely difficult. 

Mr. CHABOT. Okay. Thank you. And my time has expired. I 

apologize, Professor Zelinsky, I didn’t get to you there. But at this 

time, the gentleman from New York, Mr. Nadler, is recognized for 

5 minutes. 

Mr. NADLER. Thank you. First, a question, just of curiosity. Professor Hellerstein, are you the ‘‘Hellerstein’’ of the Hellerstein case 

in New York on property tax assessment that ruled the State’s politics for about 10 years, a number of decades ago? 

Mr. HELLERSTEIN. Yes, I am. And I also think I have a place in 

your district, if you are in 67th Street? 

Mr. NADLER. Oh, yes. 

Mr. HELLERSTEIN. So, yes, it’s my father—my father’s case. He 

didn’t make a lot of friends. 

Mr. NADLER. He certainly kept the legislature and a couple of 

governors busy for about a decade and a half. 

Professor Zelinsky, you said that States shouldn’t unfairly tax 

non-voters; for example, non-resident telecommuters. Do you make 

a distinction—I mean, I’m trying to figure out what you meant by 

that. So a commuter tax for people who work in the city of New 

York, let’s say, or the State of New York, and live in New Jersey; 

or do you distinguish that from telecommuters? And what do you 

mean by ‘‘telecommuters?’’ Mr. ZELINSKY. Yes, I am in favor of a commuter tax, when you 

commute. A telecommuter is someone who doesn’t commute, someone who stays at home. And the phrase ‘‘telecommuting’’ has become accepted to refer to people who are able to conduct their work 

one, two, 3 days a week at home. And so, yes, I do distinguish——

37

Mr. NADLER. Well, how do you get any nexus to even constitutionally tax that? 

Mr. ZELINSKY. Well, I think you have two different issues here. 

One is the typical telecommuter, such as myself, is someone who 

spends some days in New York and some days out of New York. 

That was my case. 

Mr. NADLER. So the State is claiming that the days you spend 

in New York give you the nexus to constitutionally tax the State? 

Mr. ZELINSKY. And I agree with that. The question is the day 

when I am not in New York—— Mr. NADLER. Right. 

Mr. ZELINSKY.—the day when I’m at home in New Haven, is the 

day when they want to tax. And that’s the issue for myself and 

thousands of other people. 

If I can, they just projected their taxing power into Nashville, 

Tennessee. Mr. Huckaby, whose taxation was upheld, is someone 

who spent over 80 percent of his time in Nashville, Tennessee, and 

New York taxed him for those days. 

Mr. NADLER. I see. Thank you. Ms. Kuhrt, you said that you 

thought that most—this isn’t my time, I hope. We have these 

beepers. I don’t know why we still need the bells. 

You said that most of the tax incentives that you see are modest, 

except internationally. You seem to imply that they don’t really affect—well, let me ask you this. Obviously, you think that the tax 

incentives do affect locational decisions. 

Ms. KUHRT. Yes, they do. 

Mr. NADLER. And yet, you don’t have a race to the bottom, you 

said. 

Ms. KUHRT. I think that individually the incentives that the various States offer are comparable. There’s not any one particular 

State that I can tell——

Mr. NADLER. All right, but if the incentives the States offer are 

comparable, then obviously there’s competitive pressure on every 

State to offer what Ohio is offering. 

Ms. KUHRT. Uh-huh. 

Mr. NADLER. Because otherwise, it would be an advantage to 

Ohio. In that sense, you get a race, not to the bottom, but lower 

down. 

Ms. KUHRT. Uh-huh. 

Mr. NADLER. Why shouldn’t—and I’m not talking constitutional 

law now; I’m talking economics. From the point of view of maintaining the State’s tax base, and for that matter, greater prosperity 

to all the States, why wouldn’t it be a good idea, assuming it were 

constitutional, to say nobody gives tax incentives, and let locational 

decisions be made on extrinsic economic factors? 

Ms. KUHRT. It certainly is a possible way to look at it. But many 

of the State tax incentives target particular industries. There are 

some States that offer R&D credits, trying to attract technology 

jobs. Ohio offers investment tax credits. 

Mr. NADLER. Right, but my question is, let’s assume that nobody 

offered an R&D credit. I mean, we don’t like R&D credits. Let’s assume nobody offered the R&D credit. Would the R&D get done 

someplace; albeit maybe in Tennessee and not in Georgia? Or 

would that R&D not happen? 

38

Ms. KUHRT. Or it would happen in Ontario, Canada, or in Singapore, or in Poland. 

Mr. NADLER. Okay. So you’re saying that there’s competitive 

pressure from abroad to do this. 

Ms. KUHRT. Absolutely. 

Mr. NADLER. And everybody’s got to participate in the race. 

Ms. KUHRT. Absolutely. 

Mr. NADLER. How do you distinguish—I’ll ask one of the professors. On what rational basis can you distinguish a tax incentive 

from a non-tax incentive from a straight cash grant? Let’s assume 

that the State of New York said, ‘‘If you invest in New York, we’ll 

write a check to you for $100,000.’’ On what basis can you ration- ally distinguish that from a tax incentive worth $100,000? And 

should you? 

Mr. HELLERSTEIN. I don’t—by rational—I mean, an economist 

would think it’s irrational. I think a lot of what lawyers do is irrational. But it seems to me what the Court has said in making that 

distinction, you know, ‘‘This is the hand we were dealt, right? We 

didn’t make this one up.’’ It is simply that a subsidy is less coercive. ‘‘Here’s some money. Come to Georgia. Here’s $100.’’ Rather 

than saying, ‘‘Well, you know, if you come, we’ll reduce your tax 

base, which is already there and we’ve already got our grip on 

you.’’

But I agree with you. I think it’s not a sensible distinction. And 

I think that it would be one that would be fine to eliminate. 

Mr. ZELINSKY. Representative, I think this is the rare occasion 

when you’re hearing the same thing from two law professors. We 

agree. I don’t think that the distinction that exists in the Court’s 

case law between direct and tax subsidies makes any sense at all. 

And I think that the Court is going to find itself over the years 

under increasing pressure, and is going to find it increasingly difficult to maintain that distinction. And of course, since this is the 

Dormant Commerce Clause, this Congress has the ability to legislate this. 

Mr. NADLER. Do you think it should on that subject? 

Mr. ZELINSKY. I’m in favor of very broad legislation. I think for 

a hundred years the Court has been doing Congress’ job. I don’t 

want to be undiplomatic, but the reality is that the law in this 

country would be much better if at the turn of the century—that 

is, the prior century—Congress had adopted some very broad rules 

and begun the process of creating a framework for the knitting of 

our economy. 

I don’t think the Court’s happy about the role it’s been forced to 

do. And, yes, I think there is a very broad role for this Congress 

to adopt extremely comprehensive rules, instead of responding episodically to particular incidents, which has been the pattern over 

the last 50 years. 

Mr. NADLER. Thank you very much, sir. 

Mr. CHABOT. The gentleman’s time has expired. I think the Lieutenant Governor wanted to—was chomping at the bit there to get 

in. 

Mr. JOHNSON. Well, I agree with the comments from counsel. 

And I just wanted to kind of bring light to the fact that the Administration is considering, in response to the Cuno case, what we call 

39

‘‘the loop’’; which is to take what we call in the budget process ‘‘tax 

expenditures,’’ credits given to individual companies, and changing 

them specifically into grants. 

So the following year, after you made your investment, after you 

demonstrated some Ohio tax liability, you would receive a grant in 

proportion, exact proportion, to what you would have been eligible 

for under the M&E tax credit. It, under the logic in this case, does 

not fly in the face of the United States Constitution, as I would 

read it. 

Mr. NADLER. It comes to exactly the same thing. 

Mr. CHABOT. Okay. We have a vote on the floor, so we’re going 

to be in recess here for a short period of time. We’re probably looking at 10 minutes or so. And then we’ll—I’d encourage the Members to come back as quickly as possible, so we could finish up the 

questioning. So we are in recess. 

[Recess.] 

Mr. CHABOT. The Subcommittee will now come to order. Take 

your seats, please. Okay. 

The gentleman from Virginia, Mr. Scott, is recognized for 5 minutes. 

Mr. SCOTT. Thank you, Mr. Chairman. Mr. Chairman, I think 

there is a constitutional recognition that labels count. We had a 

hearing on the gay marriage constitutional amendment, and it was 

clear that if you called it a ‘‘marriage,’’ you’d would have one effect, 

and if you—like for Massachusetts. But the same thing coming out 

of Vermont with a ‘‘civil union’’ label on it would have a different 

application. 

And here we have something, if you call it a ‘‘subsidy,’’ you get 

one result, and if you call it a ‘‘tax credit,’’ you get something else. 

I’ve always been interested. You know, if you have a $15 cash—a 

$15 credit card price, and a $10 cash price, if you call that a surcharge for using your credit card, it’s somehow evil, sinister, and 

illegal; but if you call it a discount for cash, the same differential 

is okay. 

Let me just ask the two professors, is it accurate to say that, 

whether it makes any sense or not, the Supreme Court recognizes 

the labels as important? 

Mr. ZELINSKY. The answer is ‘‘Yes.’’ And I also agree with you 

that, substantively, this is a situation where I think the label in 

fact shouldn’t make sense. Sometimes lawyers, of course, like labels, in the interest of administrability and in order to make categories that are workable. 

But I certainly agree with your observation that, in this situation, the way policies are, if not labeled, the way they’re structured, 

even though the economic effect is the same, the Court has drawn 

distinctions that I don’t think ultimately are sustainable. 

Mr. SCOTT. Well, sustainable, but they have drawn the distinction. 

Mr. ZELINSKY. Most certainly. 

Mr. SCOTT. Do you agree, Professor Hellerstein? 

Mr. HELLERSTEIN. Again, Professor Zelinsky and I find ourselves 

in violent agreement. [Laughter.] 

You know, the distinction makes no economic sense, but it’s 

there. I guess the only thing I would say in defense of it, I think 

40

that if you look at where it came from, the idea that there is a difference between spending money and—simply giving money away, 

I think—and using a tax mechanism, something that is coercive 

perhaps, and giving a little bit of what you would normally take 

from somebody, and giving it back, I think that at the extremes 

you might find some distinction. But I think in the end it does 

evaporate, and it’s not a sensible way to distinguish between valid 

and invalid ways of attracting business. 

Mr. SCOTT. Well, we’re kind of caught in a situation, then. If the 

courts have recognized the constitutionality of the difference, 

whether it makes any sense or not, how do we, as the Legislative 

Branch, get off trying to overrule what the courts have said? I 

know we frequently act as an alternative court of appeals. 

Mr. ZELINSKY. No, here let me make it very clear. You are the 

authority, under the Commerce Clause. The Dormant Commerce 

Clause is simply the Court acting in the absence of congressional 

legislation. But anything that the Court does under the Dormant 

Commerce Clause, or has done over the last hundred years, can be, 

and I think in this case should be revisited by Congress. 

This is not like the Due Process Clause, which is ultimately Congress’ to—or the Court’s to decide. The Commerce Clause is yours, 

and their Dormant Commerce Clause decisions are provisional, always subject to revision by the Congress of the United States. 

Mr. SCOTT. And so if Congress passed a statute authorizing the 

distinction, or authorizing the tax incentives, that would be constitutional? 

Mr. ZELINSKY. Absolutely. 

Mr. SCOTT. Do we get violent agreement again? 

Mr. HELLERSTEIN. Not only violent agreement, but the Court, the 

U.S. Supreme Court has again and again told Congress, in its opinions where it’s, somewhat reluctantly perhaps, striking down a case 

under the Commerce Clause, that in the end these really are matters for Congress. It is begging Congress to act. 

Mr. SCOTT. Now, do we have to do—can we just do a kind of a 

blanket permission to let States do their own things? Would that 

be sufficient? Or do we have to pass each one individually? 

Mr. ZELINSKY. Well, historically, Congress has intervened in 

some situations. There is a very well known law, 86–272, for example, under which Congress intervened to deal with some nexus 

issues. You can choose to legislate however you want. The Constitution gives you the right to regulate interstate commerce, and 

the Court is only intervening in those situations where it believes 

that there is no legislative answer and the States may be overstepping their boundaries. 

So whether you want to continue the pattern, which has been the 

historic pattern, of responding episodically, or whether it is now 

time for there to be a comprehensive project on legislative solutions 

and a legislative framework, that’s ultimately your call. I would be 

in favor of something comprehensive. 

Mr. SCOTT. But from a constitutional point of view, either one 

would be okay? 

Mr. ZELINSKY. Yes. 

Mr. CHABOT. The gentleman’s time has expired. 

Mr. SCOTT. But could we have the same to you? 

41

Mr. HELLERSTEIN. Just one brief—I think the best analogy—Professor Zelinsky referred to cases where Congress was basically restraining the States from doing something; here, you’re authorizing. 

The best example of that is when the Court said that the insurance industry was interstate commerce, this Congress passed the 

McCarran Act which said, no, it’s not affected by the Commerce 

Clause; basically, withdrew the Commerce Clause, the negative 

Commerce Clause, from the insurance industry. You would be 

doing the same thing. There’s historical precedent for this. 

Mr. CHABOT. The gentleman’s time has expired. 

The gentleman from Utah, who is co-chairing the hearing, Chairman Cannon, is recognized for 5 minutes. 

Mr. CANNON. Thank you, Mr. Chairman. 

Ms. Kuhrt, I’m a big fan of Lincoln Electric, and have followed 

you for a long time. Can you give me just a little bit of background 

on the company? How many employees do you have? 

Ms. KUHRT. We have 3,200 in the U.S., and over 7,000 around 

the world. 

Mr. CANNON. How many States do you have operations in? 

Ms. KUHRT. We currently pay income tax in 32 States. 

Mr. CANNON. And how many do you have actual manufacturing 

operations in? 

Ms. KUHRT. Oh, sorry, sorry. California and Georgia, as well as 

Ohio. 

Mr. CANNON. And how many different countries do you have operations in? 

Ms. KUHRT. We have manufacturing locations in 26 countries, 

and we do business in over 40. 

Mr. CANNON. But your equipment is used in every country on 

earth, I’m quite certain. And every State. 

Ms. KUHRT. Absolutely. Absolutely. And especially in countries 

that are developing, and building bridges and buildings and pipelines. 

Mr. CANNON. Exactly. Sort of like Utah. 

Ms. KUHRT. Exactly. 

Mr. CANNON. Developing country. [Laughter.] 

Ms. KUHRT. Exactly. You own a Red welding machine, right? 

Mr. CANNON. Actually, I don’t own a welding machine; which 

really bugs me, because I have some welding to do on my little 

property there. 

Ms. KUHRT. Oh, go buy one. 

Mr. CANNON. So I have go to out and hire somebody. But, you 

know, I don’t have time to do it anyway, myself. But if we had one, 

it would be—in fact, I have owned one in the past in my life. 

Ms. KUHRT. The only one to own. 

Mr. CANNON. That’s right. That’s right. You know, you have an 

interesting environment, where you have a very simple hiring process. And you have that simple process of not ever firing people, because it gives the company a huge benefit. And then, on the other 

hand, I suspect that your position is the most difficult of all the positions in the company, because you’re dealing with these complex 

State tax laws. Would you like to see simplification? 

42

Ms. KUHRT. Oh, absolutely. I might be out of a job, if we simplified it too much but—— Mr. CANNON. Not with your company, I suspect. 

Ms. KUHRT. No, that’s—very good, very good point. Guaranteed 

lifetime employment. No, I mean, certainly. And not just Lincoln 

Electric, but corporations across this country invest a lot of money 

simply administering tax laws. I mean, a company like Lincoln 

files, you know, over 2,000 pieces of paper a year to State and local 

governments. I mean, that’s a lot of paper to push, and that’s just 

for one little Lincoln Electric. 

Mr. CANNON. And that’s under your direction, right? 

Ms. KUHRT. Under my direction. 

Mr. CANNON. How many people do you have working for you? 

Ms. KUHRT. I have eight people. 

Mr. CANNON. Mr. Johnson, this is an income tax credit, right? 

It’s not a sales tax reduction? Or how does it actually work? 

Mr. JOHNSON. The credit is placed on the corporate franchise tax, 

which would apply to the income tax if it were an S-corporation, 

for example. 

Mr. CANNON. Okay, so it’s actually—what if a company doesn’t 

owe taxes? Do they still get money back under the credit? 

Mr. JOHNSON. No, this particular credit, the M&E tax credit, is 

a non-refundable tax credit. So they can carry it forward, but they 

can’t get a refund check from the State. 

Mr. CANNON. Okay. Great. All right. Well, thank you very much 

for those particular points. 

Professors Hellerstein and Zelinsky, I’ve got to say, it’s great to 

have some violent disagreement—or violent agreement. We have 

the scenario where my Subcommittee is going to pursue this aggressively, and I suspect we’ll be working together. If you have any 

additional comments on the particulars of where we ought to go, 

I’d love to hear that from either or both of you. 

Mr. HELLERSTEIN. Well, you know, without completely repeating 

my testimony, I would say two things. I would say that it does 

seem to me that the bills, the Voinovich-Tiberi bills, are excellent, 

in the sense that they both authorize what I think everyone believes—at least, people who are not—don’t spend their life buried 

in the Commerce Clause—think makes sense; the kind of incentive 

that, if somebody comes to Ohio, you give them some money, effectively, in the form of a tax credit or a subsidy, that seems to be 

okay. 

At the same time, I think we need to preserve the national common market that we have. You don’t want to, I think, authorize— you don’t want to authorize tariffs. You don’t want Georgia to be 

able to say that, you know, ‘‘We’re going to bar any product sold 

in the State if it’s manufactured in South Carolina.’’ And I think the bill does that, too, because it doesn’t touch that. 

So it seems to me we have here the kind of—you know, on the one 

hand, authorizing what ought to be authorized; on the other hand, 

not disturbing the vibrant—the Commerce Clause that has really 

worked quite well—although I think, as Professor Zelinsky correctly points out, perhaps from the wrong body; that it should have 

come from Congress. But the court did okay, did the best it could 

on the case-by-case basis, in trying to preserve the core principle 

43

that States shouldn’t be able to blatantly discriminate against, say, 

products from out of State. So that would be my——

Mr. CANNON. Thank you. I walked over to the vote with Pat 

Tiberi, and invited him to join us if he has a chance. And I think 

that he was going to try, but that depends upon how long we’re 

here. But Professor Zelinsky, do you have any further comments? 

Mr. ZELINSKY. Yes. I would make two observations. One is, 

again, I would separate out the question of constitutionality from 

wisdom. I respectfully disagree with those who think that these tax 

incentives are necessarily good. I think they have their costs and 

their down sides. On the other hand, I believe that, constitutionally, States should be allowed to pursue policies, whether I 

agree with them or not. 

And so I would very much recommend that you focus not on the 

economic wisdom, but rather on the question of the federalist autonomy of the States. 

Second of all, I think you ought to consider the possibility that 

this is an opportunity to really think about and legislate some of 

these broader issues. The historic pattern over the last hundred 

years has been that Congress episodically has responded to particular incidents where the Court has made rulings Congress wants 

to overturn. 

So as Professor Hellerstein says, there was the McCarran Act, 

dealing with insurance. There was 86–272, dealing with some corporate issues. During the second Clinton term, there was additional legislation dealing with the question of retirees and people 

being taxed on waterways. 

It is possible for you to respond to this particular issue of Cuno; 

but I think it may be time for Congress, after 200 years, to think 

more broadly about assuming its full-throated responsibility under 

the Commerce Clause, rather than just responding to particular decisions of the Court. 

Mr. CANNON. Thank you, Mr. Zelinsky. I yield back, Mr. Chairman. 

Mr. CHABOT. Thank you. The gentleman’s time has expired. 

The gentleman from Arizona, Mr. Franks, is recognized for 5 

minutes. 

Mr. FRANKS. Well, thank you, Mr. Chairman. And thank you, 

members of the panel here. It’s always nice when you see all this 

violent agreement that the gentleman talks about, and I wanted 

just to play off of that a moment. 

There seems to be general consensus on the Committee that, in 

terms of the Commerce Clause in the Constitution, that that is not 

really the major issue here. My first question would be directed to 

Professor Zelinsky. Do you think that there are any State tax credits that would be diametrically in conflict with the Constitution? I 

mean, other than those that, you know, would be so esoteric 

that——

Mr. ZELINSKY. The simple answer is: I don’t know. As Professor 

Hellerstein says, the Court’s interpretation, as it has developed 

over a hundred years, is very indeterminate. It’s unclear. I could 

make a very good argument, under the Court’s existing case law, 

that just about any State tax provision is unconstitutional. 

44

When I criticize the Sixth Circuit, I have to say at some level I 

also sympathize with these folks, because I think they were given 

a very difficult hand to play by the Supreme Court of the United 

States, and it’s fairly incoherent tax law. The Court, itself, on occasion has said that its own tax law is a quagmire. 

So I have to say to you, we really don’t know in many ways what 

the Dormant Commerce Clause means; which is a strong argument 

for this Congress legislating to give us some rules. 

Mr. FRANKS. So it’s your testimony, essentially, that the Court’s 

confusion is based on the omission of Congress, rather than the 

commission? 

Mr. ZELINSKY. Correct. The reality is that the Framers thought, 

I believe, from my reading of historic evidence—expected Congress 

to be an active regulator of interstate commerce. For a variety of 

reasons, which I’m not sure we totally understand, the pattern 

which developed largely after the Civil War, and then accelerated 

during the 20th century, was the Court acting as the Dormant 

Commerce Clause decision-maker. 

And I’m suggesting that I do think that it is inevitable that more 

and more of these issues are going to have to be dealt with legislatively. 

Mr. FRANKS. Thank you, professor. Lieutenant Governor Johnson, I know, as someone who is an executive in State government, 

you have to essentially balance the economic interests of your 

State; doing everything that you can to enhance productivity, and 

still be able to sustain the needs and the revenues to run government. And those things are quite often, you know, in a dynamic 

crucible. 

So I guess my question to you, if Congress did pass legislation 

comprehensively, as an executive of state, what would be two or 

three of the seminal, foundational principles that you think should 

be involved? 

Mr. JOHNSON. Well, thank you, Mr. Chairman, to the Member. 

The State is currently reviewing in a comprehensive way its tax 

code. And I would leave it to the States to make determinations 

about what are the issues that are in the best interests of the people of that State, as it relates to the tax code; without allowing the 

State to unduly discriminate against out-of-State products. I think 

that is the issue. 

Our tax provisions and our credits apply to activity in the State, 

regardless of whether or not the company itself is an in-State resident or an out-of-State corporation. And I think that’s critically important. 

I think there are a number of items in Senator Voinovich’s bill 

and Representative Tiberi’s bill that kind of outline those areas 

which most of us would consider to be out of bounds, in terms of 

permitting discrimination that would raise tariffs, for example, for 

the interstate transportation of goods; which we don’t support, either. 

So the fact that we do compete against some folks in our neighboring States does not mean that we want to intentionally discriminate. We just want to encourage investment in our State. Investment in our State means that the economy of the United States 

45

grows. Investment in our State means that the job base in the 

United States of America is growing. 

And some of our most critical competitors are not the States of 

Indiana or Michigan; it’s China and Mexico, and even Ontario, 

Canada, which has become incredibly aggressive in these issues. 

Mr. FRANKS. Mr. Chairman, last question. Mr. Johnson, if you 

could write legislation that would correct the problem as far as 

you’re concerned in this present case, what would you rifle-in on? 

What would be the principal——

Mr. JOHNSON. Thank you, Mr. Chairman, to the Member. I’m 

reading now from—this is the second page of Senator Voinovich’s 

piece. And it says that, ‘‘Authorize the State to provide any person 

for economic development—’’ any State ‘‘—development purposes, 

tax incentives that would otherwise be cause or a source of discrimination against the Interstate Commerce Clause.’’

And then it lists kind of the exceptions, which I think is where 

you’re headed, what types of things. In other words, it would generally provide States the authority to do this, to provide economic 

development incentives. And then it would say, ‘‘Then there are 

some exceptions. Can’t be dependent upon the State or the country 

of incorporation.’’ I think that’s important. ‘‘Commercial domicile or 

residence requires the recipient of the tax incentive to acquire, 

lease, or use, or provide services or property produced in State.’’ In 

other words, if somebody uses the M&E tax credit in Ohio, they 

don’t have to use an Ohio manufacturer for that equipment. They 

can buy their equipment any place, so long as they install it in the 

State of Ohio. 

It’s reduced or eliminated as a result of an increase in out-ofState activity. In other words, I can’t penalize Lincoln Electric for 

investing in Michigan—God forbid—or India. [Laughter.] 

There’s still a little rivalry between Ohio and Michigan. 

And so I think we worked with Representative Tiberi and with 

Senator Voinovich in the development of the legislation. And we 

think that it preserves those elements of the Dormant Commerce 

Clause that ought to be preserved and, at the same time, it kind 

of sets out some guidance for State tax administrators. 

Mr. FRANKS. Thank you, Mr. Chairman. 

Mr. CHABOT. Thank you. The gentleman’s time has expired. 

That concludes—unless the gentleman from Virginia has any 

other questions or anything, that concludes the questions from the 

Members of the panel here. 

I want to thank—and I know Chairman Cannon also shares in 

this and wants to thank the very distinguished panel for your testimony here this morning. It’s been very helpful. I think each of you 

has contributed immensely to this issue. 

And we will take all of your testimony today in consideration as 

we deal with this in this Committee, and ultimately probably on 

the floor of the House of Representatives. So thank you for your 

testimony this morning. 

If there’s no further business to come before the two Committees, 

we’re adjourned. Thank you. 

[Whereupon, at 11:42 a.m., the joint Subcommittees were adjourned.]

46

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