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You Be the Judge

Are tax incentives to attract businesses unconstitutional?

This story appears in the March 2006 issue of Entrepreneur. Subscribe »

In late September, the Supreme Court agreed to hear an Ohio case on state tax incentives, and its decision could affect similar incentive programs nationwide. The suit was brought by three separate plaintiffs, each alleging that incentives provided by the state of Ohio to DaimlerChrysler AG to build a manufacturing facility in the state were unconstitutional.

The decision, says Walter Hellerstein, professor of law at the University of Georgia School of Law, "has tremendous implications for the constitutionality of the garden-variety credit against income tax liability for new equipment. Many states have that kind of credit." Those states could find their incentive programs running afoul of commerce law.

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