1

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

ELECTRONIC CITATION: 2004 FED App. 0293P (6th Cir.)

File Name: 04a0293p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

_________________

CHARLOTTE CUNO, et al.,

Plaintiffs-Appellants,

v.

DAIMLERCHRYSLER, INC., et

al.,

Defendants-Appellees.

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No. 01-3960

Appeal from the United States District Court

for the Northern District of Ohio at Toledo.

No. 00-07247—David A. Katz, District Judge.

Argued: February 4, 2003

Decided and Filed: September 2, 2004 

Before: SILER, DAUGHTREY, and COLE, Circuit

Judges.

_________________

COUNSEL

ARGUED: Peter D. Enrich, NORTHEASTERN

UNIVERSITY SCHOOL OF LAW, Boston, Massachusetts,

for Appellants. Charles A. Rothfeld, MAYER, BROWN,

ROWE & MAW, Washington, D.C., Sharon A. Jennings,

2 Cuno, et al. v. DaimlerChrysler

Inc., et al.

No. 01-3960

OFFICE OF THE ATTORNEY GENERAL OF OHIO,

Columbus, Ohio, for Appellees. ON BRIEF: Peter D.

Enrich, NORTHEASTERN UNIVERSITY SCHOOL OF

LAW, Boston, Massachusetts, Terry J. Lodge, Toledo, Ohio,

for Appellants. Charles A. Rothfeld, MAYER, BROWN,

ROWE & MAW, Washington, D.C., Sharon A. Jennings,

Robert C. Maier, OFFICE OF THE ATTORNEY GENERAL

OF OHIO, Columbus, Ohio, Albin Bauer, John T. Landwehr,

EASTMAN & SMITH, Toledo, Ohio, Truman A.

Greenwood, Theodore M. Rowen, SPENGLER

NATHANSON, Toledo, Ohio, Samuel J. Nugent, Barbara E.

Herring, OFFICE OF THE CITY OF TOLEDO LAW

DEPARTMENT, Toledo, Ohio, for Appellees.

_________________

OPINION

_________________

MARTHA CRAIG DAUGHTREY, Circuit Judge. The

plaintiffs initiated this litigation in state court, challenging the

validity of certain state tax credits and local property tax

abatements that were granted to DaimlerChryslerCorporation

as an inducement to the company to expand its business

operations in Toledo, Ohio. They contend that the tax scheme

discriminates against interstate commerce by granting

preferential treatment to in-state investment and activity, in

violation of the Commerce Clause of the United States

Constitution and the Equal Protection Clause of the Ohio

Constitution. After the defendants removed the action to

federal court, the district court entered an order dismissing the

complaint under Federal Rules of Civil Procedure 12(b)(1)

and 12(b)(6) for failure to state a claim. Because we conclude

that the investment tax credit runs afoul of the Commerce

Clause, we can affirm only part of the district court’s

judgment. 
No. 01-3960 Cuno, et al. v. DaimlerChrysler

Inc., et al.

3

I. FACTUAL AND PROCEDURAL BACKGROUND

In 1998, DaimlerChrysler entered into an agreement with

the City of Toledo to construct a new vehicle-assembly plant

near the company’s existing facility in exchange for various

tax incentives. DaimlerChrysler estimated that it would

invest approximately $1.2 billion in this project, which would

provide the region with several thousand new jobs. In return,

the City and two local school districts agreed to give

DaimlerChrysler a ten-year 100 percent property tax

exemption, as well as an investment tax credit of 13.5 percent

against the state corporate franchise tax for certain qualifying

investments. The total value of the tax incentives was

estimated to be $280 million. 

Ohio’s investment tax credit grants a taxpayer a nonrefundable credit against the state’s corporate franchise tax if

the taxpayer “purchases new manufacturing machinery and

equipment during the qualifying period, provided that the new

manufacturing machinery and equipment are installed in

[Ohio].” Ohio Rev. Code Ann. § 5733.33(B)(1). The

investment tax credit is generally 7.5 percent “of the excess

of the cost of the new manufacturing machinery and

equipment purchased during the calendar year for use in a

county over the county average new manufacturing

machinery and equipment investment for that county.” See

Ohio Rev. Code Ann. § 5733.33(C)(1). The rate increases to

13.5 percent of the cost of the new investment if it is

purchased for use in specific economically depressed areas.

See Ohio Rev. Code Ann. § 5733.33(C)(2), (A)(8)-(13). The

credit may not exceed $1 million unless the taxpayer has

increased its overall ownership of manufacturing equipment

in the state during the year for which the credit is claimed.

See Ohio Rev. Code Ann. § 5733.33(B)(2)(a). To the extent

that the credit exceeds the corporation’s total Ohio franchise

tax liability in a particular year, the balance of the credit is

carried forward and can be used to reduce its liability in any

4 Cuno, et al. v. DaimlerChrysler

Inc., et al.

No. 01-3960

of the three following years. See Ohio Rev. Code Ann.

§ 5733.33(D).

The personal property tax exemption is authorized under

§§ 5709.62 and 5709.631; it permits municipalities to offer

specified incentives to an enterprise that “agrees to establish,

expand, renovate, or occupy a facility and hire new

employees, or preserve employment opportunities for existing

employees” in economically depressed areas. Ohio Rev.

Code Ann. § 5709.62(C)(1). An exemption may be granted

“for a specified number of years, not to exceed ten, of a

specified portion, up to seventy-five per cent, of the assessed

value of tangible personal property first used in business at

the project site as a result of the agreement.” Ohio Rev. Code

Ann. § 5709.62(C)(1)(a). The exemption may exceed 75

percent with consent of the affected school districts. See

Ohio Rev. Code Ann. § 5709.62(D)(1). 

The district court held that the investment tax credit and the

property tax exemption do not violate the Commerce Clause

because, although “an increase in activity in Ohio could

increase the credit and exemption amount” under the two

statutes, an increase in activity outside the state would not

decrease the amount of the tax credit or exemption and

therefore would not run afoul of the United States Supreme

Court’s ruling in Westinghouse Electric Company v. Tully,

466 U.S. 388, 400-01 (1984). From that decision, the

plaintiffs now appeal. 

II. ANALYSIS

We review de novo a district court’s order granting a

motion to dismiss for failure to state a claim upon which

relief may be granted. See Inge v. Rock Fin. Corp., 281 F.3d

613, 619 (6th Cir. 2002). In considering a motion to dismiss

pursuant to Rule 12(b)(6), all well-pleaded factual allegations

of the complaint must be accepted as true and the complaint

construed in the light most favorable to the plaintiffs. Id. It
No. 01-3960 Cuno, et al. v. DaimlerChrysler

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5

is well-settled that dismissal of a complaint is proper “only if

it is clear that no relief could be granted under any set of facts

that could be proved consistent with the allegations.” Hishon

v. King & Spalding, 467 U.S. 69, 73 (1984)(citing Conley v

Gibson, 355 U.S. 41, 45-46 (1957)). 

On appeal, the plaintiffs’ primary contention is that the

Ohio statutes authorizing the investment tax credit and

personal property tax exemption violate the Commerce

Clause of the United States Constitution. Secondarily, the

plaintiffs claim that the tax incentives violate Ohio’s Equal

Protection Clause. 

A. Commerce Clause Claim

The United States Constitution expressly authorizes

Congress to “regulate Commerce with foreign Nations, and

among the several States,” U.S. Const. art. I, § 8, cl. 3, and

the “negative” or “dormant” aspect of the Commerce Clause

implicitly limits the State’s right to tax interstate commerce.

A tax provision satisfies the requirements of the Commerce

Clause if (1) the activity taxed has a substantial nexus with

the taxing State; (2) the tax is fairly apportioned to reflect the

degree of activity that occurs within the State; (3) the tax does

not discriminate against interstate commerce; and (4) the tax

is fairly related to benefits provided by the state. See

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279

(1977). 

The parties do not dispute that the tax provisions at issue

have a sufficient nexus with the state, are fairly apportioned,

and are related to benefits provided by the state. Nor do the

parties dispute that it is legitimate for Ohio to structure its tax

system to encourage new intrastate economic activity.

Indeed, the United States Supreme Court has indicated that

the Commerce Clause “does not prevent the States from

structuring their tax systems to encourage the growth and

development of intrastate commerce and industry,” nor does

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No. 01-3960

it prevent a state from “compet[ing] with other States for a

share of interstate commerce” so long as “no State []

discriminatorily tax[es] the products manufactured or the

business operations performed in any other State.” Boston

Stock Exch. v. State Tax Comm’n, 429 U.S. 318, 336-37

(1977); see also Bacchus Imports, Ltd. v. Dias, 468 U.S. 263,

272 (1984) (the federal Commerce Clause “limits the manner

in which States may legitimately compete for interstate

trade”). Rather, the parties dispute whether Ohio’s method

for encouraging new economic investment – conferring

investment tax incentives and property tax exemptions –

discriminates against interstate commerce.

The United States Supreme Court has never precisely

delineated the scope of the doctrine that bars discriminatory

taxes. The Court has made clear, however, that a tax statute’s

“constitutionality does not depend upon whether one focuses

upon the benefitted or the burdened party.” Bacchus Imports,

468 U.S. at 273. The fact that a statute “discriminates against

business carried on outside the State by disallowing a tax

credit rather than by imposing a higher tax” is therefore

legally irrelevant. Westinghouse Elec. Corp. v. Tully, 466

U.S. 388, 404 (1984). 

In general, a challenged credit or exemption will fail

Commerce Clause scrutiny if it discriminates on its face or if,

on the basis of “a sensitive, case-by-case analysis of purposes

and effects,” the provision “will in its practical operation

work discrimination against interstate commerce,” West Lynn

Creamery v. Healy, 512 U.S. 186, 201 (1994)(citations

omitted), by “providing a direct commercial advantage to

local business.” Bacchus Imports, 468 U.S. at 268 (citations

omitted). “‘[D]iscrimination’ simply means differential

treatment of in-state and out-of-state economic interests that

benefits the former and burdens the latter.” Oregon Waste

Sys., Inc. v. Dep’t. of Envtl. Quality, 511 U.S. 93, 99 (1994).

A state tax provision that discriminates against interstate

commerce is invalid unless “it advances a legitimate local
No. 01-3960 Cuno, et al. v. DaimlerChrysler

Inc., et al.

7

purpose that cannot be adequately served by reasonable

nondiscriminatory alternatives.” Id. at 101 (quoting New

Energy Co. of Ind. v. Limbach, 486 U.S. 269, 278 (1988)).

1. Investment Tax Credit

Although the investment tax credit at issue here is equally

available to in-state and out-of-state businesses, the plaintiffs

nevertheless maintain that it discriminates against interstate

economic activity by coercing businesses already subject to

the Ohio franchise tax to expand locally rather than out-ofstate. Specifically, any corporation currently doing business

in Ohio, and therefore paying the state’s corporate franchise

tax in Ohio, can reduce its existing tax liability by locating

significant new machinery and equipment within the state, but

it will receive no such reduction in tax liability if it locates a

comparable plant and equipment elsewhere. Moreover, as

between two businesses, otherwise similarly situated and each

subject to Ohio taxation, the business that chooses to expand

its local presence will enjoy a reduced tax burden, based

directly on its new in-state investment, while a competitor

that invests out-of-state will face a comparatively higher tax

burden because it will be ineligible for any credit against its

Ohio tax. 

The plaintiffs’ argument principally relies on the Supreme

Court’s own explanation of its Commerce Clause

jurisprudence in cases invalidating tax schemes that

encourage the development of local industry by imposing

greater burdens on economic activity taking place outside the

state. In Boston Stock Exchange, for example, the Supreme

Court held unconstitutional amendments to New York’s

securities transfer tax that aimed to offset the competitive

advantage that the transfer tax otherwise created for out-ofstate exchanges that did not tax transfers. See Boston Stock

Exchange, 429 U.S. at 323 - 24. Prior to the amendment,

New York uniformly taxed in-state transfers of securities

without regard to the place of sale. See id. at 322. The

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No. 01-3960

amendment created a 50 percent reduction in the tax rate on

transfers by nonresidents and limited liability on transfers of

large blocks of shares as long as the sales were made in New

York. See id. at 324. As a result, the amendment caused

transactions involving out-of-state sales to be taxed more

heavily than transactions involving in-state sales. See id. at

330 - 31. The Court held that the reduction offended the

Commerce Clause’s anti-discrimination principle by

converting a tax that was previously “neutral as to in-state and

out-of-state sales” into one that which would induce a seller

to trade through a New York broker in order to reduce its tax

liability. See id. at 330-32. In doing so, New York

effectively “foreclose[d] tax-neutral decisions” and “creat[ed]

both an advantage for the exchanges in New York and a

discriminatory burden on commerce to its sister States.” Id.

at 331. The diversion of interstate commerce from the most

economically efficient channels that resulted from New

York’s use of “its power to tax an in-state operation as a

means of ‘requiring [other] business operations to be

performed in the home state,’” id. at 336 (quoting Pike v.

Bruce Church, Inc., 397 U.S. 137, 145 (1970)), was seen by

the Court as “wholly inconsistent with the free trade purpose

of the Commerce Clause.” 

Shortly thereafter, in Maryland v. Louisiana, 451 U.S. 725

(1981), the Supreme Court reviewed a Louisiana statute that

imposed a first-use tax on natural gas extracted from the

continental shelf in an amount equivalent to the severance tax

imposed on natural gas extracted in Louisiana. See id. at 731.

Taxpayers subject to the first-use tax were entitled to a direct

tax credit on any Louisiana Severance Tax owed in

connection with the extraction of natural resources within the

state. See id. at 732. Most Louisiana consumers of offshore

gas were eligible for tax credits and exemptions, but the tax

applied in full to offshore gas moving through and out of

state. See id. at 733. Noting that the state severance tax

credit “favor[ed] those who both own [offshore] gas and

engage in Louisiana production” and that the “obvious
No. 01-3960 Cuno, et al. v. DaimlerChrysler

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9

economic effect of this Severance Tax Credit [was] to

encourage natural gas owners involved in the production of

[offshore] gas to invest in mineral exploration and

development within Louisiana rather than to invest in further

[offshore] development or in production in other States,” the

Court held that the statute “unquestionably discriminate[d]

against interstate commerce in favor of local interests.” Id. at

756 - 57. 

In Westinghouse Electric Corp. v. Tully, 466 U.S. 388

(1984), the Supreme Court invalidated a New York franchise

tax that gave corporations an income tax credit based on the

portion of their exports shipped from New York. Under the

law, income from a subsidiary engaged exclusively in exports

was to be combined with the income of its parent company

for state tax purposes. See id. at 393. In an effort to provide

an incentive to increase export activity in New York, the

parent company was given a partially offsetting credit against

income tax attributable to the subsidiary’s income generated

from New York exports. See id. Because the credit was

based on the ratio of the subsidiary’s New York exports to its

income from all export shipments, a company’s overall New

York tax liability would decrease as exports from New York

increased relative to exports from other states. Conversely, a

company’s New York tax liability increased when exports

from New York decreased relative to exports from other

states. See id. at 401. The Court found that the tax scheme

“penalize[d] increases in the [export] shipping activities in

other states,” id. at 401, and that it was therefore a

discriminatory tax that advantaged New York firms “by

placing ‘a discriminatory burden on commerce to its sister

States.’” Id. at 406 (quoting Boston Stock Exchange, 429 U.S.

at 331). 

Analogizing to the provisions considered in Boston Stock

Exchange, Maryland v. Louisiana, and Westinghouse, the

plaintiffs argue that the investment tax credit at issue here

encourages the development of local business through the use

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Inc., et al.

No. 01-3960

of Ohio’s “power to tax an in-state operation as a means of

‘requiring [other] business operations to be performed in the

home State.’” Boston Stock Exch., 429 U.S. at 336 (quoting

Bruce Church, 397 U.S. at 145). Thus, they contend that like

the tax credit in Maryland v. Louisiana, the economic effect

of the Ohio investment tax credit is to encourage further

investment in-state at the expense of development in other

states and that the result is to hinder free trade among the

states. Cf. Boston Stock Exch., 468 U.S. at 336.

The defendants maintain that the Supreme Court’s opinions

should be read narrowly to hold that tax incentives, like the

Ohio tax credit, are permissible as long as they do not

penalize out-of-state economic activity, citing Philip M.

Tatarowicz & Rebecca F. Mims-Velarde, An Analytical

Approach to State Tax Discrimination Under the Commerce

Clause, 39 Vand. L. Rev. 879, 929 (1986) (elaborating upon

and applying this distinction to the Court’s precedents). In

their view, the Commerce Clause is primarily concerned with

preventing economic protectionism – that is, regulatory

measures designed to benefit local interests by burdening outof-state commerce. According to their theory, the only tax

credits and exemptions that would run afoul of the Commerce

Clause fall into two categories: those that function like a tariff

by placing a higher tax upon out-of-state business or products

and those that penalize out-of-state economic activity by

relying on both the taxpayer’s in-state and out-of-state

activities to determine the taxpayer’s effective tax rate. 

Although it is arguably possible to fit certain of the

Supreme Court’s cases into this framework, it is clear that the

Court itself has not adopted this approach in analyzing

dormant Commerce Clause cases, undoubtedly because it

rests on the distinction between laws that benefit in-state

activity and laws that burden out-of-state activity. Such a

distinction is tenuous in light of the Court’s acknowledgment

that “[v]irtually every discriminatory statute allocates benefits

or burdens unequally; each can be viewed as conferring a
No. 01-3960 Cuno, et al. v. DaimlerChrysler

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11

benefit on one party and a detriment on the other, in either an

absolute or relative sense.” Bacchus Imports, 468 U.S. at

273. Indeed, economically speaking, the effect of a tax

benefit or burden is the same. Moreover, the Court’s

command to examine the practical effect of challenged tax

schemes suggests that “constitutionality [should] not depend

upon whether one focuses upon the benefitted or the burdened

party.” Id.; see also Westinghouse, 466 U.S. at 404 (“Nor is

it relevant that New York discriminates against business

carried on outside the State by disallowing a tax credit rather

than by imposing a higher tax.”). 

Although the defendants liken the investment tax credit to

a direct subsidy, which would no doubt have the same

economic effect, the Court has intimated that attempts to

create location incentives through the state’s power to tax are

to be treated differently from direct subsidies despite their

similarity in terms of end-result economic impact. The

majority in New Energy noted in dicta that subsidies do not

“ordinarily run afoul of [the Commerce Clause]” because they

are not generally “connect[ed] with the State’s regulation of

interstate commerce.” New Energy Co., 486 U.S. at 278; see

also West Lynn Creamery, 512 U.S. at 199 n.15 (“We have

never squarely confronted the constitutionality of subsidies,

and we need not do so now. We have, however, noted that

‘[d]irect subsidization of domestic industry does not

ordinarily run afoul’ of the negative Commerce

Clause.”(quoting New Energy Co., 486 U.S. at 278)). Thus,

the distinction between a subsidy and a tax credit, in the

constitutional sense, results from the fact that the tax credit

involves state regulation of interstate commerce through its

power to tax. 

In short, while we may be sympathetic to efforts by the City

of Toledo to attract industry into its economically depressed

areas, we conclude that Ohio’s investment tax credit cannot

be upheld under the Commerce Clause of the United States

Constitution. 

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No. 01-3960

2. Personal Property Tax Exemption

The plaintiffsmaintain that the discriminatory characteristic

of the City’s personal property tax exemption rests not on the

fact that only in-state property is eligible for exemption, but

rather on the conditions that Ohio places on eligibility –

conditions that require beneficiaries of the exemptions to

agree to maintain a specified level of employment and

investment in the state. The effect, they argue, is to subject

two similarly situated owners of Ohio personal property to

differential tax rates. A taxpayer who agrees to focus his

employment or investment in Ohio receives preferential

treatment in the form of a tax break, while a taxpayer who

prefers to preserve the freedom to hire or invest elsewhere

does not.

Although conditions imposed on property tax exemptions

may independently violate the Commerce Clause, conditional

exemptions raise no constitutional issues when the conditions

for obtaining the favorable tax treatment are related to the use

or location of the property itself. Stated differently, an

exemption may be discriminatory if it requires the beneficiary

to engage in another form of business in order to receive the

benefit or is limited to businesses with a specified economic

presence. Cf. Maryland, 451 U.S. at 756-57 (finding

unconstitutional a tax benefit that encouraged natural gas

owners to invest in other forms of mineral exploration and

development within Louisiana rather than investing further in

natural gas development outside the state). However, if the

conditions imposed on the exemption do not discriminate

based on an independent form of commerce, they are

permissible.

Contrary to the plaintiffs’ assertions, the conditions

imposed on the receipt of the Ohio property tax exemption are

minor collateral requirements and are directly linked to the

use of the exempted personal property. The authorizing

statute requires only an investment in new or existing
No. 01-3960 Cuno, et al. v. DaimlerChrysler

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13

1

Plaintiffs’ assertion that the exemption, once received, coerces

business into continual re-investment in Ohio in order to preserve the tax

exemption is not persuasive. The exemption is project-specific and,

therefore, a business does not lose its existing exemption by deciding to

make its next investment elsewhere.

property within an enterprise zone and maintenance of

employees. See Ohio Rev. Code Ann. § 5709.62(C)(1). The

statute does not impose specific monetary requirements,

require the creation of new jobs, or encourage a beneficiary to

engage in an additional form of commerce independent of the

newly acquired property.1 As a consequence, the conditions

placed on eligibility for the exemption do not independently

burden interstate commerce.

The cases on which the plaintiffs rely are inapplicable here,

because they fail to address the question of whether

conditions attached to the receipt of an exemption violate the

anti-discrimination principle where the conditionsthemselves

do not impose independent burdens upon commerce. In

Camps Newfound/Owatonna,Inc. v. Town of Harrison, 520

U.S. 564 (1997), the Supreme Court reviewed a property tax

exemption for charitable organizations that excluded

organizations operated principally for the benefits of

nonresidents and found the exemption unconstitutionally

discriminatory because the effect of the statute was to

“distinguish[] between entities that serve a principally

interstate clientele and those that primarily serve an intrastate

market, singling out [entities] that serve mostly in-staters for

beneficial tax treatment, and penalizing those camps that do

a principally interstate business.” Id. at 576. Similarly, the

Fifth Circuit in Pelican Chapter, Associated Builders &

Contractors, Inc. v. Edwards, 128 F.3d 910 (5th Cir. 1997),

invalidated a tax exemption because it required beneficiaries

to give a preference to in-state manufacturers, suppliers, and

laborers. The Ohio provision at issue contains no restriction

on the individuals employed or served. Therefore, the

14 Cuno, et al. v. DaimlerChrysler

Inc., et al.

No. 01-3960

conditional character of the Ohio property tax exemption does

not resemble characteristics of property tax exemptions found

unconstitutional by previous courts. 

Finally, the plaintiffs’ argument regarding the effect of the

exemption overlooks fundamental differences between tax

credits and exemptions. Unlike an investment tax credit that

reduces pre-existing income tax liability, the personal

property exemption does not reduce any existing property tax

liability. The exemption merely allows a taxpayer to avoid

tax liability for new personal property put into first use in

conjunction with a qualified new investment. Thus, a

taxpayer’s failure to locate new investments within Ohio

simply means that the taxpayer is not subject to the state’s

property tax at all, and any discriminatory treatment between

a company that invests in Ohio and one that invests out-ofstate cannot be attributed the Ohio tax regime or its failure to

reduce current property taxes. Additionally, the personal

property tax exemption is internally consistent because, if

universally applied, the new property would escape tax

liability irrespective of location. Every new investment, no

matter where undertaken, would be exempt from a tax. Thus,

businesses that desire to expand are neither discriminated

against nor pressured into investing in Ohio. Accordingly, we

hold that the Ohio personal property tax exemption does not

violate the dormant Commerce Clause.

B. State Equal Protection Claim

The plaintiffs also challenged the investment tax credit and

property tax exemption under the Equal Protection Clause of

theOhio Constitution, contending that the authorizing statutes

“reflect a bias in favor of entrenched local interests that

results in a discriminatory allocation of tax burdens and

benefits.” The district court found no equal protection

violation based on a determination that both provisions were

rationally related to a legitimate state interest in revitalizing

economically troubled areas. 
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15

The Equal Protection Clauses of the Ohio and United States

Constitutions impose identical limitations on government

classification. See Am. Ass’n of Univ. Professors v. Cent.

State Univ., 717 N.E.2d 286, 291 (Ohio 1999) (rejecting an

argument that the state equal protection clause imposes

stricter analysis than the federal equal protection clause).

Heightened review is triggered only if the classification

“jeopardizes exercise of a fundamental right or categorizes on

the basis of an inherently suspect characteristic.” MCI

Telecommunications Corp. v. Limbach, 625 N.E.2d 597, 600

(Ohio 1994). Because the tax credit and the exemption

provision classify on the basis of locality, a classification that

is not inherently suspect, the tax incentives need only satisfy

rational basis review. 

Under rational basis review, a classification “must be

upheld against equal protection challenge if there is any

reasonably conceivable state of facts that could provide a

rational basis for the classification.” Cent. State Univ., 717

N.E.2d at 290 (quoting FCC v. Beach Communications, Inc.,

508 U.S. 307, 313 (1993)). A rational relationship exists so

long as “the relationship of the classification to its goal is not

so attenuated as to render the distinction arbitrary or

irrational.” Pica Corp., Inc. v. Tracy, 646 N.E.2d 206, 209

(Ohio Ct. App. 1994). The state, moreover, has no duty to

produce legislative facts to sustain the rationality of a

statutory classification. Cent. State Univ., 717 N.E.2d at 290.

A statute is presumed constitutional, and the “burden is on the

one attacking the legislative arrangement to negative every

conceivable basis which might support it.” Id.(quoting Heller

v. Doe, 509 U.S. 312, 320 (1993)(citation omitted)).

The courts have recognized a state’s legitimate interest in

revitalizing economically troubled areas in order to eliminate

problems frequently associated with urban blight. See, e.g.,

Desenco, Inc. v. Akron, 706 N.E.2d 323, 332 (Ohio 1999)

(statutes that created economic development districts were

rationally related to the state’s legitimate interest in

16 Cuno, et al. v. DaimlerChrysler

Inc., et al.

No. 01-3960

facilitating economic development, creating or preserving

jobs, and improving the economic welfare of citizens);

Nordlinger v. Hahn, 505 U.S. 1, 12 (1992) (“[T]he State has

a legitimate interest in local neighborhood preservation,

continuity, and stability.”) (citing Village of Euclid v. Ambler

Realty Co., 272 U.S. 365 (1926)). The benefits conferred by

the investment tax credit and property tax exemption are

rationally related to this interest, given that their objective is

to encourage businesses to relocate or expand existing

facilities in central cities or areas that have high

unemployment rates, significant low-income populations, or

deteriorating buildings. 

The plaintiffs argue nonetheless that granting tax incentives

to a new domestic business but not nonresident businesses is

not a legitimate purpose under Ohio’s Equal Protection

Clause. However, the cases cited in support of this argument

lend little or no weight to the plaintiffs’ position. In

Metropolitan Life Insurance Co. v. Ward, 470 U.S. 869, 880

(1985), for example, the Court invalidated an Alabama statute

that imposed a higher tax rate on insurance companies that

were incorporated or maintained their principal place of

business outside of Alabama, on the ground that the

difference in treatment failed to advance a legitimate state

interest. In so ruling, the Court held “that promotion of

domestic business within a State, by discriminating against

foreign corporations that wish to compete by doing business

there, is not a legitimate state purpose.” Id. Thus,

Metropolitan Life holds that a state may not impose a

discriminatory tax in order to promote domestic industry

solely based on nonresident status. The tax benefits under the

Ohio statutes, however, are equally available to domestic and

foreign corporations and classify corporations on the basis of

new investment in economically depressed areas. 

Likewise inapplicable are the cited opinions in Allegheny

Pittsburgh Coal Co. v. County Commission of Webster

County, 488 U.S. 336 (1989), and Hooper v. Bernalillo
No. 01-3960 Cuno, et al. v. DaimlerChrysler

Inc., et al.

17

County Assessor, 472 U.S. 612 (1985). In both cases, the

Supreme Court struck down a county property tax assessment

scheme that could not reasonably support the state’s asserted

legislative purpose. In Allegheny, the county tax assessor

valued property based on the last sale price regardless of

when it was last sold, providing only a modest increase in

assessed value for properties that had not been recently

transferred. See id. at 343. This practice resulted in gross

disparitiesin the assessed value of comparable properties. The

Court acknowledged that a “[s]tate may divide different kinds

of property into classes and assign to each class a different tax

burden so long as those divisions and burdens are

reasonable,” but it found no rational basis for the county’s tax

scheme whose asserted purpose was to “assess[ ] properties

at true current value.” Id. at 343-44. Similarly, the Court

held in Hooper that a tax exemption classifying military

veterans based solely on their period of residency within the

state could not be rationalized by the state’s interest in

encouraging veterans to relocate to the state or in repaying

veterans for their military service. 472 U.S. at 620-22. 

By contrast, the classification in this case is clearly

supported by facts that give rise to a legitimate state interest.

In the equal protection context, a tax statute withstands

constitutional scrutiny as long as the burden it imposes is

found to be rationally related to that purpose. The purpose of

the Ohio statutes – to encourage industrial development and

economic stimulation of the state’s economically troubled

areas – clearly has a reasonable nexus to the tax provisions.

Hence, we conclude that the plaintiffs have failed to

demonstrate that the challenged tax incentives violate the

Equal Protection Clause of the Ohio Constitution.

III. CONCLUSION

For the reasons set out above, we REVERSE that portion

of the district court’s judgment upholding as constitutional

the investment tax credit provision of Ohio Rev. Code Ann.

18 Cuno, et al. v. DaimlerChrysler

Inc., et al.

No. 01-3960

§ 5733.33, and we enjoin its enforcement. We AFFIRM the

remaining portions of the district court’s judgment.