Section of Taxation Publications

VOL. 60
NO. 4

Contents | TTL Home


Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.

Challenging State Investment Tax Credits After DaimlerChrysler Corp. v. Cuno
Christopher Klimmek


States use investment tax credits and a host of similar incentives to attract businesses in the hopes of stimulating economic growth and creating jobs. Although the economic evidence indicates that the effectiveness of these measures is doubtful, state politicians continue to regard them as an important tool for promoting economic growth. Recently, state taxpayers have challenged these measures in court, arguing that they result in discriminatory taxation of out-of-state businesses in violation of the dormant Commerce Clause.

The Supreme Court was squarely confronted with this argument in Daimler-Chrysler Corporation v. Cuno but declined to reach it, finding that the plaintiffs lacked standing as taxpayers to press their claim in federal court. This Note argues that the Court’s decision in Cuno creates a significant barrier to future challenges to state investment tax credits by ordinary taxpayers, but where such credits adversely affect the competitiveness of out-of-state businesses, those businesses harmed by the credits have standing to challenge them in federal court. Thus, after Cuno, only an investment tax credit that does tangible harm to interstate competition can be challenged in federal court.

Part I describes the growth of state investment tax credits and the current controversy over their constitutionality. Part II describes the history of the Daimler-Chrysler, Inc. v. Cuno litigation and summarizes the Court’s opinion. Part III discusses the implications of Cuno for the standing of taxpayers seeking to challenge state investment tax credits and related incentives, and argues that the prospects of success are bleak. Part IV examines the feasibility of non-taxpayer challenges to such incentives after Cuno and argues that states lack standing to bring such challenges, but that businesses harmed by such credits have standing to do so.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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