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

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

Members of both parties in Congress are trying to reverse anunappealing decision handed down last September by the 6th U.S.Circuit Court of Appeals, whose rulings cover the states ofKentucky, Michigan, Ohio and Tennessee. The decision said it wasunconstitutional for Ohio to offer tax incentives to statecompanies to convince them to expand inside the state'sborders.

Sometimes tax incentives, such as Ohio's manufacturingmachinery and equipment tax credit, are used to lure entrepreneursto high-priority economic development zones. Ohio had offered theincentives to DaimlerChrysler AG for expansion of a Jeep plant inToledo, an expansion which has gone forward anyway as the companyappeals the court decision. That growth has meant considerable newbusiness for numerous small Jeep suppliers in Toledo. In itsSeptember decision, the appeals court struck down the tax creditbecause Ohio companies could not get the tax credit if theyexpanded outside the state; the court ruled that the tax credittherefore discriminated against interstate commerce.

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