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

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.

Bills have already been introduced in both the Senate and theHouse (S.1066/H.R. 2471) that would legalize the Ohio tax creditand others like it. Reversing the appeals court decision is apressing issue because similar challenges to state tax incentivesare pending in Minnesota, Nebraska and Wisconsin, and a suit isexpected to be filed soon in North Carolina.

"This [new] legislation is carefully crafted to protect themost common and benign forms of tax incentives, but not toauthorize those tax incentives that truly discriminate againstinterstate commerce," says Sen. George Voinovich (R-Ohio), whowas governor of Ohio when the tax credit became law and isco-sponsoring the new bill. "This legislation does notinvalidate any tax incentives. It only authorizes taxincentives."

Stephen Barlas is a freelance business reporter who coversthe Washington beat for 15 magazines.