Charlotte Cuno v. Daimlerchrysler, Inc.

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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,
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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 DaimlerChrysler Corporation
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.

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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 non-
refundable 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
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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

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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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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

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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-of-
state. 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-of-
state 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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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

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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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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 out-
of-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

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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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2. Personal Property Tax Exemption
The plaintiffs maintain 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

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1Plaintiffs’ 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 do es not lose its existing exemp tion by d eciding 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 conditions themselves
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
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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-of-
state 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
the Ohio 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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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
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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

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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
disparities in 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.

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