1 RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Six

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ELECTRO NIC CIT

ATION: 2004 FED App . 0293P (6th C ir.) File Name: 04a02 93p.06



### UNITED STATES COURT OF APPEALS

FOR THE SIXT H CIR CUIT

_________________
C HARLOTTE C UNO , et al., Plaintiffs- Appellant s,

v.

D AIMLER C HRYSLER , I NC ., et al., Defenda nts-Appe llees. X - - - -
> , - - - - N 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

Befor e: SIL ER, DAUGH TREY, and

COLE, Circuit Judges.

_________________ COUNSEL

ARGUED: Peter D. Enrich , NORTHEA ST ER N UNIVERSI TY SCHOOL OF L AW, Boston, Massach

usetts, for Appellants. Charles A. Rothfeld, MAYER, BROWN, ROW E & MAW, Washing ton, D.C., Sharon A. Jennings, 2 Cuno, et al. v. DaimlerChrysler Inc., et al. No. 01-3960

OFFI CE OF THE ATTORNE Y GENERAL OF O HIO, Columbus, Ohio, for Appellees. ON BRI EF: Pe ter D. Enr ich, NORTHEASTERN UNIVERSI TY SCHOOL OF LA W, Bos ton , Ma ssa chu set

ts, Ter ry J. Lodge, Toledo, Ohio, for Appellants. Charles A. Rothfeld, MAYER, BROWN, R OWE & MAW, Washington, D.C., Sharon A. Jenni ngs , Robert C. Maier, OFFICE OF

THE ATTORNEYGENERAL OF OHIO, Columbus, Ohio, Albin Bauer, John T. Landwehr, EAST MAN & SMITH, Toledo, Ohio, Truman A. Greenwood, Theo dore M. Rowen, SPENG LE R NATHANSON, Tol edo , Oh io, Sam uel J. Nugent, Barbara

E. Herring
, O FFICE OF THE CITY OF TOL EDO LAW DEPARTMEN T, Toledo , Ohio, fo r Appelle es.

_________________ OPINION

_________________ MARTHA CRAIG

DAUGHTR

EY, Circu

it Ju dge. The plaintiffs initiated this litigation in state court, challenging the validi ty of certain state tax credits and local property tax abateme nts that were granted to DaimlerChr ysler Corp oration
as an inducement

to th e compan

y to expand its b

usiness operations in Toledo, Ohio. They conte nd that the tax scheme discriminates against inters t ate commerce by granting preferentialtreatment to in-state inve stment and acti vity , in violation of the C ommer ce Clause of the United States Constitution and the E qual Prote ction Cla use o f the Ohio Constitution. After th e defen dants re moved the

action to federal court, the district

court entered

an order dismissing the complaint under F ederal

Rules of Civ

il Pr oce dure 12(b)(1) and 12(b)(6) for failureto state a claim. Because we conc lude that the inves t ment tax credit runs afoul of the Commerce Clause, w e can affirm only par t of the district court’s judgment.No. 01-3960 Cuno, et al. v. DaimlerChrysler Inc., et al. 3

I. FACTUAL AND PROCEDURAL BACKGROUND

In1998, DaimlerChrysler e ntered into an a greem ent with the City of Toledo to construct a new vehicle-assembly

plant
near the company’s e

xisting facility in exchange for various tax incentiv es. Daiml erChry sler esti m atedthat it wou

ld invest approxima

tely $1.2 billion in this proj ect, whic h would provide the region

with several thousand new jobs. In return, the City and two local scho ol dist ricts agreed to give DaimlerChrysler

a ten-ye ar 100 percent pr op erty tax exemption, as well as an investment tax credit of 13.5 percent agains tthe state co rporate franch ise tax for certain qualify

ing investm e nts. The total value of the tax incentives was estimated to be $280 million.

Ohio’s investment tax c redit grants a taxpayer a nonrefunda ble credit against the state’s c orporat e franc hise tax if the tax payer

“purchases new manufacturing machinery a

nd equipment

during the q

uali fying pe

riod, provided that the new manufacturing

machinery a

nd equipment are instal led in [Ohio].” Ohio Rev. Code Ann. § 5733 .3 3(B)(1). The investmenttax credi t is g eneral ly 7 .5 perce nt “of the excess of the cost of the new manufacturing mac hinery and equipment

purchased during the calendar year f o ruse in a county over the county a

verage new manufac

turin g machinery

and equipme nt investment for that county.” See Ohio Rev. Code

Ann. § 573 3.33(C)( 1). The r ate incr eases to 13.5 percen

t of the c ost of the

new inve stment if it

is purchased

for use i n specif

ic economically

depress ed area s. See Ohio Rev. Code Ann. § 5733.33(C)(2), (A)(8)-(13). The credit may not exceed $1 million unl ess the taxpayer has increased its overall ownership of manufacturing equipment inthe state during the y

ear 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 franch ise tax liability in a particular y ear, the balance of

the credit is carried forward

and can be used to

reduce its liabilit

y in any 4 Cuno, et al. v. DaimlerChrysler Inc., et al. No. 01-3960

of the three following y ears. See Ohio Rev. Code Ann. § 5733.33(D).

The persona

l proper ty ta x exempti on is authorized under §§ 5709.62 and

5 709.631; it permits municipalities to offer specified incentiv es to an enterprise that “agre es to establish, expand, re no va te , o r o cc up y a facility and hire new employ ees, or preserve employ

ment opportunities for existin g employ ees”in economically depr es sed areas. Ohio Rev. Code Ann. § 5709.62(C)(1). An exemption may be g ranted

“ for a specified number of y ears, not to exceed t en, of a specified portion, u

p to seventy-five

per cent, of the assessed value of tang ible per sonal pro perty first used in business at the project site as a result of the agree ment.” Ohio Rev. Code Ann. § 5709.62(C)(1)(a). The exemption may exceed 75 perc ent wit h consent of the affected school districts. See Ohio Rev. Code Ann. § 5709.62(D)(1).

The district c ourt held

that the investment tax credit and the propert y tax exemption do not violate the Commerce Clause because, although “an incre ase in activit y in Ohio coul d increa se the credit and ex emp tion amount” under the two statu te s, an in cr ea se in ac ti vi ty outside the state would not decreas e the amount of the tax credit or exemption and therefore would not r

un afoul of

the Unite d States Supreme Court’s rulin g i n 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 ord er gr antin g a motion to dismiss for failure to state a claim upon which relief may be g ranted. 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 a llegations of the complaint must be accepted as true and the complaint construed in the light

most favo rable to

the plain tiffs. Id . ItNo. 01-3960 Cuno, et al. v. DaimlerChrysler Inc., et al. 5

is well-settled that

dismissal o f a compl aint is pro per “onl y if it is clear that no re lief cou

ld be gr anted und er any set of fa cts that could be proved

consistent with the allegations.” Hishon

v. King & Spald ing , 467 U.S. 69, 73 (1984)(citingConley v Gibson , 355 U.S. 41, 45-46 (1957)).

Onappeal, the plain

tiffs’ pr imary contenti on is t

h at the Ohi o statutes a

uthorizing

the inves tment tax cr

edit an d p e rsonal property tax exemption violate the Commerce Clauseof the United States Constitution. Secondar ily, t he plaintiffs claim that the tax incentives violate Ohio’s Equal Protection Clause.

A. Com merc e Clause C laim

The United Sta

te s Constitution expressly authorizes Congre ss to “regulate Commerce with foreig n Nations, and among the several States,” U.S. Const. art. I , § 8 , cl. 3, and the “negative”or

“dorman t” aspect of the Com

merce Cl ause implicitly limits the State’s right

to tax inter state commerce. A tax provision sa

tis fies the requirements of the Commerce Clauseif (1) the activity

taxed has a

substantia

l nexus with the taxing State; (2) the tax is fairly apportioned to re flect the degree of activity that occur s within the State; (3) the tax does notdiscriminate ag ainst

interstate commerce; and (4) the tax is fa ir ly relat ed to benefits provided by the state. See Complete Auto Transit, In c . v. Brady , 430 U.S. 274, 279 (1977).

The parties d

o not disput

e that th e tax pr ovisions at issue have a suffic ient nexus w ith the state, are fairly appor tioned, and are related to benefits provided by the state. Nor do the parties dispute thatit is legi timatefor Ohio to structure its tax system to encour a ge ne w i nt ra st at e e co no mi c a ct iv it y. Indeed, the United States Supr e me Court has indicated that the Co mmerce Clause “does not prevent the States from structuring their tax system s to encourage the gr owth and development

of intrastate commerce and industry ,” nor does 6 Cuno, et al. v. DaimlerChrysler Inc., et al. No. 01-3960

it prevent a sta te from “ compet[ing] with other States for a share of interstate commerce ” so long a s “noState [] discriminatorily

tax[es] the products manufactured or the business ope rations 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 federa

l Commerc e Clause

“limits the manner inwhichStat es may

legitima tely compete for inter

state trade”). Rather , the parties dispute whether Ohio’s method for encouraging new e conomic investment – conferring investmenttax incentives and proper ty t ax exemptions

– discriminates against interstate commerce.

The United Sta

tes Supre me Court ha s never precise ly delin eated

the scope of the doctrine that bars discriminatory taxes. The Court has made clear, however, that a tax statute’s “constitu tionality does not depend upon

whether one focuses upon the benefitted or the burdened party .” Bacchus Imports , 468 U.S. at 273 . The fa

ct that a statute “discriminates agains t businesscarrie d on outside the State by d isallo wi ng a tax credit rather than by

imposing a high er tax” is therefore legall y irrelevant. West

inghouse E

lec. Corp . v. Tully , 466 U.S. 388, 404 (1984).

Ingener al, a cha ll enged c redit or e

xemption will

fail Commerce Clause scrutiny if it discriminates on its face or if,
on the basis of “a sensitive, case-by- caseanalysis of purposes and effects,” the prov i sion “will in its practical operation work discrimination ag ainst inte rstate commerce,” West Lynn Creamery v. Healy , 512 U.S. 186, 201 (1994)(citations omitted), by “

providing a dir ect commerc ial adva ntage t o 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 benefit s the former and burdens the latter.” Oregon W aste Sys., Inc. v. Dep’t. of Envtl. Quality, 511 U.S. 93, 99 (1994). A state tax pr

ovision tha

t discrimin

ates ag ainst i nters tate
commerce is invalid unless “it advances a legitimate localNo. 01-3960 Cuno, et al. v. DaimlerChrysler Inc., et al. 7

purpose that cannot be adequately served by r easonab le nondiscriminatory

alternatives.” Id. a t 101 (quot ing New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 278 (1988)).

1. Investm ent Tax Cr edit Althoug h the inve stment tax credit at issue h ere is equally availab le to in-stat

e and out- of-state

businesse s, the plaintiffs neverth eless ma in tain that i t discrimin

ates ag ainst inte

rstate economic activity by c oercing

businesse s alrea

dy s ubject to the Ohio fra

nchise ta x to expand loc ally

rath er than out-ofstate. Specifically, any

corporation

curren tly d oing bus iness inOhio, and

theref ore pay ing the s tate’s c orporat

e franc hise tax in Ohio, can reduce its exist ing tax liability by locating significant

new machinery

and equipment withi n the s tate, but it will receive no such reduction in tax liabili

ty if it locates a compara ble plant and equipment elsewhere. Moreover, as between tw o b us in es se s, ot he rw is e s im il ar ly situated and e ach subject to Ohio taxation, the business that chooses to expand its local pr

esence will enjoy

a reduc ed ta

x burden , based directly on its new in-state investment, while a competitor that invests out-of-state will face a compar atively higher tax burden be caus e it will be

ineligib le for a

ny c redit ag ainst its Ohio tax.

The plaintiffs’ argument principally relies on the Supreme Court’s own explanat ion of its Comme rce Clau se jurisprudence in cases inva l idating tax schemes that
encoura ge the development of local industry by imposing greater burdens on economic activity taking place outside the state. In Boston Stock Exchange , for exam ple, the Supreme Courtheld unco n stitutional amendments to New York’s securities transfer tax that aimed t o offse t the competitive
a dvanta ge that the transfer tax otherwise created for out-of

state exchanges that did not tax transfer s. See Boston Stock Exchange
, 429 U.S. a

t 3 23 - 24. Prior to the

amendme

nt, NewYork uniformly taxed in-state tran sf ers of securities

w ithout regard to the place of sale

. See id. at 322. Th e 8 Cuno, et al. v. DaimlerChrysler Inc., et al. No. 01-3960

amendment

created a 50 percent red

u ction 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 Ne w York. See id. at 324. As a result, t he amendment caused transactions invol

ving out-o f-state s alesto be

taxe d mor e heavily than tra nsaction s involving

in -state s ales. See id. at 330 - 31. The Court held that the reduction offended t h e Commerce Clause’s anti-discrimination princ iple by convertinga

tax that was previously “neutra l as to in-state and out-of- state sal es” into one that which would induce a seller to trade through a

New York broker

in order to reduce its tax li ab il it y. See id. at 330 -32. In doing so, New Y ork effec tiv ely “foreclose[d] tax-neutral decisions” and “creat[ed ] both an advantag e for the exchanges in New York a nd a discriminatory burden on commerc e to its sister States.” Id. at 331. The dive

rsion of in

terstate commerc e from the

most economic ally

efficient channels that resulted from New York’s use of “its power to tax an in-s tate ope ration a s a means of ‘requiring [other] business oper at ions to be p erformed in the home state,’” id. at 336 (quot ing Pike v. Bruce Church, Inc., 397 U.S. 137, 145 (1970)), was seen by the Court as “wholly inconsistent with the free trade pu

rpose of the Commerce Clause.” Shortly thereafter, in Maryland v. Louisiana , 451 U.S. 725 (1981), the Supreme Court reviewed a L ouisiana statute that imposed a fi rst-usetax on natural gas extracted from the continental shelf in

an amount equivalent to the severance tax imposed on natural gas extracted in L ouisiana. See id. at 731. Taxpayerssubject to

the first-use tax were entitled to a direct tax credit on any

Louis iana Seve

rance T ax 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 cr edits a nd exemptions, but the tax applied in full to off

shore g as moving through and out of
s tate. See id. at 733. Noting that the state severance tax credit “fav or[e d] those who both own [offshore] gas and engage in Lou

isiana pr oduction” and that the “obviousNo. 01-3960 Cuno, et al. v. DaimlerChrysler Inc., et al. 9

economic ef fe ct of this Se

veranc e Tax Cred

it [was] to
encou rage natural gas owners involved in the produ ction of [offshor e ] gas to invest in mineral exploration and development

within Louis iana ra

ther tha n to invest

infurther [offshore] development or in productionin other States,” the Courtheld t hat the statute “unquestionably discr iminate[d] agains tinterstate commerce in favor of local intere sts.” Id . at 756 - 57.

In West i nghouse Electric Corp. v. Tul

ly , 466 U.S. 388 (1984), the Supreme Court invalidated a New York franch ise tax that gave corporations an income tax credit based on the portion of their e

xports shipped from New York. Under the law, income f

rom a subs idiary

engag ed exclusi

vely inexports
w as to be combined with the income of its parent co mpan y for state tax pu

rposes. See id. at 393. In an effor tto provide
anin ce nt iv e t o i nc re as e e xp or t a ct iv it y in Ne w York, the parent company wa s given a

partiall y of fsetting credit agains t income tax attributable to the subsidiary’s income g enerated from New York exports. See id. Because the credit wa s based on the ratio

of the sub sidiary ’s New Y ork export s to its income fromall export shipments, a company’soverall New York tax liability

would decrease as exports from New York increased relative to exports from other states. Conversely, a company’s New Yor

k tax liabilit

y increase d when exports fromNew York de crease d relative to exports from other states. See id. at 401. The Court found that the t ax sche me “penalize[d] increases in th e [export] shi pping a ctivities in ot her states,” id . at 401, and that it was theref ore a discriminatory

tax t hat advantaged New York f irms “by placi ng ‘a discriminatory bur den on commerce to its sister States.’” Id. at 406 (quot ing Boston Stock Exchange , 429 U.S. at 331). Analogizing to the provisions considered in Boston Stock Exchange
, Maryland v. Louisiana
, and Westing hou se , the plaintiffs argue that the investment tax credit at issue here encourages the development of local busi ness t hrough the use 10 Cuno, et al. v. DaimlerChrysler Inc., et al. No. 01-3960

of Ohio’s “power to tax an in-stat e operation as a means of ‘requiring [other] business operations to be performed in the home State.’” Boston Sto ck Exch ., 429 U.S. at 336 (quoting Bruce Church
, 397 U.S. at 145). Thus, they contend tha t like the tax credit in Maryland v. Louisiana , the economic effect of the Ohio inv estment tax credit is to encourage further investmentin-state at

the expense of development in other states and that the result is to hi nder free trade among the states. Cf. Boston Stock Exch ., 468 U.S. at 336.

The defenda

nts mainta

in that the Supreme C ourt’s opin ions should be read narrowly

to hold that tax incentives, like the Ohio ta x c redit, are permissible as long as they do not pena lize o ut-o f-state

economic

activity , citing Philip M. Tatarowicz & Rebecca F. M ims-Velarde, An Analytical Approach to State Tax Discrimination Under the Commerce Clause
, 39 Vand. L. Rev. 879, 929 (1986) (elaborating upon and ap plying this distinction to the Court’s precede nts). I n their view, the Commerce Clauseis primar ily c oncerne d with p reventingeconomic protectionism – that is, regulator y measures designe d to benefit local inte rests by b urdeningoutof-state commerce. Acco rding to their theory , the only tax credits and exempt

ions that w ould

run afoul of

the Commerce Clausefall into two categories: those that function like a tariff by placing a higher tax upon out- of-state

business or produc ts and those that penalize o ut-of -state economic activity

by relying on bo th th e t ax pa ye r’s in-state and out-o f-state activities to determine the taxpayer ’s effective tax rate.

Alth ough it is arguably possible to fi t certai n of the Supreme Court’s cases into this framework, it is clear that the Courtitself has not adopted this approach in an al yz ing dor ma ntCommerce

Clause ca ses, undo

ubtedly because it rests on the dist

inction be

tween la ws that be

nefit in- state activity and laws that burde n out-of-state activity. Such a distinction is tenuous in light of the Court’s acknowledgment that “[v]i rtually ever

y discriminatory

statute allocates bene fit s or burde ns une quall y; each can be vie wed as c onferr ing aNo. 01-3960 Cuno, et al. v. DaimlerChrysler Inc., et al. 11

benefit on one party a

nd a detriment on the other, in either an absolute or relative sense.” Bacchus Imports

, 468 U.S. at 273. Inde ed, eco nomically spea king, the effect of a tax benefit or burden is the same. Moreover, the Court’s command to examine t

he practic al ef

fect 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 disc

riminate s again st busines s carried on outside the State by

disallowing a tax credit rather than by imposing a hig

her tax.”).

Alth ough the defendants liken the inves tment tax cr

edit to
a direct subsidy, which would no doubt have the same
eco nomic effec t, the Cour t has intima

ted that a ttempts to create location incentives through the state’s power to tax are to be treated

diff erently from dire ct subsidie s despite their similarity in term s of end-result economic impact. The majority in New E nergy

noted in dicta that subsidies do not “ord inar ily

run afoul of [the Commerce Clause]” because they
are not generally

“connect[ed] with the State’s reg u lation of intersta te commerce.” New Energy Co. , 486 U.S. at 278; see also West Lynn Creamery, 51 2 U.S. a t 199 n.15 (“We have
never sq ua re ly c on fr on te d t he co ns ti tu ti on al it y o f sub sidies, andwe n eed not do so now. We have, however, noted t ha t ‘[d]irectsubsidizati on of dome sti c industry does not ordinar il y

run afoul’ of the negative Com merc e Claus e.”(qu otin g New Energy Co. , 486 U.S. at 278)) . Thus, the di st in ct io n b et we en a s ub si dy a nd a tax credit, in the constitutional sense, results fro m the fact tha t the tax cr

edit involves state regulation of inters ta te commer ce throu gh its power to tax.

Inshort, wh

ile we ma y be sym pathetic to effor ts by t he City of Toledo to attrac t industry into its economically depre ssed areas, we co nc lude that Ohio’s investment tax credit cannot be upheld under the Com merce C lause of the United States Constitution. 12 Cuno, et al. v. DaimlerChrysler Inc., et al. No. 01-3960

2. Personal Property Tax Exemption

The plaintiffs maintain

that the discriminatory cha ra cteristi c of the City ’s perso nal prope rty tax exemption

rests noton the fact that only in-st ate p rope rty is eli gibl e for

exe mptio n, but rather on the con

ditions t hat Ohi o p la ce s o n e li gi bi li ty – conditions tha t require

benefic iaries of

the exempti ons to agreeto maintai

n a speci fied le vel of employment and investmentin t he state . The effect, they argue, is to subject two similarly

situated owners of

Ohio per sonal pro

perty to differential tax rates. A tax pa ye r who ag rees to f ocus his employment

or investment in Ohio receives preferential treatment in the form of a tax break, w hile a taxpayer who prefers to prese

rve the f reedom t o hir e or invest elsewhere does not.

Alth ough condition s i m posed on property ta x exemptions may indepe n dently violate the Commerce Clause, conditional exemptions raiseno constitutional issues when the conditions for obtaining the favorable tax treatme nt are r elated to the use
or location of the pr

operty i tself. Stated differently, a n exemption may be discriminatory if it requires the beneficiary to engage in another f

orm of business in order to receive the benefit or is limited to businesses with a specified economic presence. Cf. Mary land , 451 U.S. at 756-57 (finding unconstitutional a tax benefit that encouraged natural g as owners to invest in other forms of mineral explor ati on and development

within Louisiana rather than investing further in nat ural ga s development outside the state). However, if the condition s im posed on the exemption do not discriminate based on an independent form of commerce, the y ar e permissible.

Con trary to the plaintiffs’ assertions, the condition s imposed on the re ceipt of

the Ohio p roperty

tax exemption are minor collateral requirements and are d irec tly linked to the
use of the exempted personal property . The a uthor izing statute requires only a

n in vestment in new or existingNo. 01-3960 Cuno, et al. v. DaimlerChrysler Inc., et al. 13

1 Plaintiffs’ assertion t hat t he exempti on, once rec eived, coer c es business int o continual re -in vestment in Ohio i n order to preserve the t ax exempt ion is no t persu asi ve. The exempt ion i s proj ect- speci fi c and, theref ore, a busin ess do es no t lose i ts existing ex emp tion by d ecidin g to make it s next

inves tment e lsewhe re. propert y wi thi n an enterprise zone and maintenance of employ ees. See Ohio Rev. Code Ann

. § 5709.62(C)(1). The st atute does not impose specific monetary requirement s , require the creation of

new jobs, or encourage a be neficiary to engage in anadditional form of commerce independent of the newly acquired pr op er ty. 1 As a consequence, the conditions placed on eligibility f

or the exemption do not indepe ndently burden interstate commerce.

The cases on

whichthe plaintiffs rely a re inapplicable here, b ecause they fail to addre ss the question of wh ethe r conditions attached to the receipt of an exemption violate the anti-discrimination principle where the conditions them selves do not impose independent burdens upon comme rce . In Camps Newfound/Owatonna,Inc. v. Town o f Harrison, 520 U.S. 564 (1997), the Supreme Court reviewed a property

tax exemption for cha ritab le orga niza tions that excluded organizations oper at ed principally for the benefits of nonresid ent s and foun

d the exemp tion uncon stitutiona lly d iscriminatory

because the eff ect of th e statute

was t o “dist ingu ish[] between entities that serv e a principa lly intersta te clientel e and thos e that pr imarily serve a n intrasta te market, singling

out [entitie s] that serve mostly in-staters for beneficial tax treatment, and penalizing those camps that do
a principally interstate business.” Id. at 576. Similarly, the Fif th Circuit in Pelican C hapter, A ssociate

d Builders

& Co ntractors

, 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 manufac turers, suppliers, and laborers. The Ohio provision a t issue co ntain s n o restriction
on the individuals employed or serv ed. Therefore, the 14 Cuno, et al. v. DaimlerChrysler Inc., et al. No. 01-3960

con ditional character of the Ohio property tax exemption does notresemble

charac teristic s of prope

rty tax exemptions found unconstitutional by previous courts.

Fi na ll y, the plaintiffs’ argument rega rding the effect of the exemption overl oo ks fundamental differences betwee n tax credits and exemptions. Unlike an investment tax credit that reduces pre-existing income tax liability, the personal propert y exemption does not

reduce any

existing property tax li ab il it y. The exemption merely allows a taxpa yer to avoid tax liability for new p ersonal propert y pu t into firs t use in conjunction with a qualified new investment. Thus, a taxpayer’sfa ilu re to loc ate new investmen

ts within Oh

io simply m eans tha

t the taxpay

er is not su

bject to the state ’ s propert y tax at all, and

any discriminatory

treatment between
a co mpan y that invests in Ohio and one that invests out-ofstate cannot be attributed the Ohio tax re gime or its failure to reduce current prope rt y t axes. Additionally, the personal propert y tax exem ption is inte

rnally consiste nt becau se, if universa ll y applied, the new property would escape tax liab ility irrespective of location. Every new investment , n o matter where undertaken, would be exempt froma tax. Thus, bus i nesses that desire to expand are neither discriminated agains tnor pressured

into investing in Ohio. Accordingly , we hold that the Ohio personal property tax exemption does not violate the dormant Commerce Clause. B. State Equ al Prot ection C laim

The plaintiff

s also challenged the investment tax credit and propert y tax exemption under the

Equal Pro tection Cl ause of the Ohi o Constitution, contending that the author izing statute s “reflect a bias in favor of entrenched local interests that results in a d i scriminatory alloca tion of tax burdens and benefits.” The district court found no equal protection violation based on a

determination that both provisions were rationa lly related to a leg itimate sta

te intere st in revitalizing economically troubled a

reas.No. 01-3960 Cuno, et al. v. DaimlerChrysler Inc., et al. 15

The Equal Protection Clauses of the Ohio and United

States Constitutions impose ide ntical limi

ta ti ons on government clas sificat ion. See Am. A ss’n of Uni v. Profes sors v. Ce

nt. State Univ. , 71 7 N.E .2d 286, 291 (Ohio 1999) (rejecting an argument that the state equal protection clause imposes stricter analy sis than the

federa l equal prote ction clause). Heig hte ned review is triggered only if the classification “jeopardizes exercise of

a fundamental right or categor izes on the basis of an inhere ntly suspect chara cteristic.” MCI Telecommunications Corp. v. Limbach , 625 N.E.2d 597, 600 (Ohio 1994). B ecause

th e t ax credit and the exemption provision classify on the basis of loc ality, a classification

that is notinherently suspect, the tax incentives need only satisfy rational basis review.

Under rational basis review, a c lassif ication “must be upheld against equal protection challeng e if there is any
reasona bly conceivable state of facts that could provide a rational basis for the classification.” Cent. State Uni v

. , 717 N.E.2d at 290 (quot ing FCC

v. Beach Communications, Inc.
, 508 U.S. 307, 313 (1993)). A rationa l relationship exists s o long as “the relationship of the classification to its goal is not
so attenuated as to render the di stinction arbitrary or irrational.” Pica Corp., Inc. v. Tracy , 646 N.E .2d 206, 209 (Ohio Ct. App. 1994). The state, mor eover, has no duty to produce legisla

tive facts to su stai n 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 attackin

g the le gis lativ e arrangement to neg ative every conceiv able basis which might support it.” Id. (quot ing Heller v. Doe , 509 U.S. 312, 320 (1993)(citation omitted)).

The courts ha

ve reco gnized a

state’s l egitima

te intere st in revitalizing economically troubled a reas in order

to elimina

te problems frequently a ssociated with urban blight. See, e.g., Desenco, I

nc. v. Akron , 706 N.E.2d 323, 332 (Ohio 1999) (statutes that created economic development districts were rationa lly r elate d to the sta

te’s legitimate int

erest in 16 Cuno, et al. v. DaimlerChrysler Inc., et al. No. 01-3960

facilitating econom i c development, creating or prese rving jobs, and improving the economic welfar e of citizens); Nordlinger

v. Hahn , 505 U.S. 1, 12 (1992) (“[T]he State has
a legitimate interest in local neighb o rhood preservation,
co nt in ui ty, and st abili ty.”) (cit ing Village of Euclid v. Ambler Realty Co. , 272 U.S. 365 (1926)). The benefits conferred by the investment tax credit and prop erty ta x exemption are rationa lly related to this interest, given that their obje ctive is to encourage businesses to reloca te or expan d ex isting facilities in central cities or a reas t hat ha ve high unemployment

rates, signific ant low-i

ncome pop

ulations, or deteriorating buildings.

The plaintiffs argue noneth eless that granting tax incentives to a new domestic business but not nonresid ent busine sses is nota legit

imate pur

pose unde

r Ohio’s Equal Protection Clause. Howeve

r, the ca ses cited

insupport of this argument lend little or no weig

ht to th e pl ain ti ffs ’ po si ti on. In Metropolitan Life Insur

ance Co. v

. War d , 470 U.S. 869, 880 (1985), for examp le, the Cou rt invalid ated an A labama s tatute that imposed a higher tax rate on in surance companies that
were incorporated or maint ai ned their principal place of businessoutside of Alabama, on the ground that the difference in tre atmen t fail ed to a dvanc e a legi timat e state interest

. In so

ruling, the Co ur t held “that promotion of domestic bu si ness withi

n a State, by d

iscrimina ting ag ainst foreig n corpor ations tha t wish to compete by doing

business there, is not a legitimate state purpo se.” Id

. Thus, Metropolitan Life holds that a st ate ma

y not impose a discriminatory

tax in orde

r to promo te domesti c in dust ry solely based on nonresident status. The tax benefits under the Ohio statutes, however, are equally available to domestic and forei gn corporations and classify c orporations on the basis of new investment in economically de pressed areas.

Li kewise inapplicable are the cited opinions in Alleghen y Pittsburgh Coal Co. v. County Commission of We bster County , 488 U.S. 336 (1989), an d Hooper v . Bernalil

loNo. 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 pr operty tax assessment scheme that coul d

not reas onably

support the state’s asserted legislative purpose. In Allegheny , the coun ty tax as sessor va lued property ba sed on the last sale price regar dless of when it was last sold, providing only a mod es t increa se in assessed value for properties that had no t been re cently trans ferred. See id. at 343 . This practi ce resu lted i n gr os s di sparities in t

he assessed value of comparable prope rties. The Courtacknowl edged

that a “[s]ta

te may divide different kinds of property into classe s and assig n to each class a different tax bu rden so long a s those divisions and burdens ar e reasonable,” but it found no rational basis for the county’s tax scheme whose asserted purpose was to “a ssess [ ] properties at tr ue current

value.” Id. at 343-44. Similarly, the Court held in Hooper

that a tax exemption cla ssify ing mil it ary veterans based sol ely

on their period of residency within the state could not b e ration alized by th e state’s inte

rest in encouraging

veterans to relocate t o the s tate or in repay ing veterans for their military service. 472 U.S. at 620-22. By contrast, the classification in t his ca se is clea

rly supported by facts that g

ive rise to a

legitima te state i nterest. Inthe equal protection context, a tax statute withstands constitutional scrut iny as lon g a s the burd en it impose s is found to be rat ionally related to that pur

pose. The

purpose of the Ohio statu

tes – to encourage industrial development and
econo mic s timulation of the state’s economically trouble d
areas – cle arly

has a re asonable

nexus to the

tax provisions. Hence, we conc lude th at the pla intiffs ha ve faile d to demonstr ate that the challenged tax incentives violate the Equal Protection Clause of the Ohio Constitution.

III. CONCLUSION

For the reasons set out above, we REVER SE that portion of the district cour

t’s ju dgment 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, a

nd we enj oin

its enfor cement. We AFFIRM the remainin g portions of the d

istrict c ourt’s jud

gment.