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Congress goes to bat for in-state expansion tax incentives.

This story appears in the September 2005 issue of Entrepreneur. Subscribe »

Members of both parties in Congress are trying to reverse an unappealing decision handed down last September by the 6th U.S. Circuit Court of Appeals, whose rulings cover the states of Kentucky, Michigan, Ohio and Tennessee. The decision said it was unconstitutional for Ohio to offer tax incentives to state companies to convince them to expand inside the state's borders.

Sometimes tax incentives, such as Ohio's manufacturing machinery and equipment tax credit, are used to lure entrepreneurs to high-priority economic development zones. Ohio had offered the incentives to DaimlerChrysler AG for expansion of a Jeep plant in Toledo, an expansion which has gone forward anyway as the company appeals the court decision. That growth has meant considerable new business for numerous small Jeep suppliers in Toledo. In its September decision, the appeals court struck down the tax credit because Ohio companies could not get the tax credit if they expanded outside the state; the court ruled that the tax credit therefore discriminated against interstate commerce.

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