- The Washington Times - Thursday, June 23, 2005

A lawsuit filed against the state of North Carolina yesterday seeks to block the types of corporate tax incentives that are used for major business developments nationwide.

The North Carolina Institute for Constitutional Law filed the lawsuit to stop state and local officials from giving giant computer manufacturer Dell Inc. nearly $280 million in tax incentives and other financial aid to build a plant in Winston-Salem.

Similar tax breaks are commonly used in the Washington area to attract and retain businesses.

Downtown Silver Spring is being revitalized with about $250 million in state and local aid, which includes tax rebates to developers and tax incentives to corporations for new jobs created.

The North Carolina group says large tax breaks violate the commerce clause of the Constitution, which is used to regulate interstate commerce.

“States and local governments are being played off one another resulting in loss of tax revenue, which could be used for important government services like education or Medicaid or returned in part all the taxpayers of this state,” said Robert F. Orr, the institute’s executive director and a former North Carolina Supreme Court justice.

Similar lawsuits nationwide gained credibility in September when the 6th Circuit federal court ruled that tax credits Ohio gave to DaimlerChrysler violated the commerce clause by discriminating against competing companies in other states.

In other words, the competitors paid higher taxes than DaimlerChrysler because of the incentives.

That ruling has been appealed to the U.S. Supreme Court.

The North Carolina General Assembly last year approved $242 million in incentives for Dell. Winston-Salem and Forsyth County, where the personal computer manufacturing plant is scheduled to begin production in September, are offering another $37.2 million in incentives.

The Institute for Constitutional Law’s lawsuit was filed on behalf of seven North Carolina residents who say they do not receive tax breaks like the ones offered to Dell.

Mr. Orr said he wants Dell “to pay its fair share” of taxes.

However, constitutional law scholars questioned whether his argument can withstand a court challenge.

“The commerce clause is there to promote competition,” said William Bratton, a Georgetown University Law Center professor who teaches law and economics. “It’s the clause of the Constitution that creates the national marketplace.”

Tax incentives are “just another aspect of the marketplace, a form of healthy competition,” Mr. Bratton said.

Government officials say they could not attract private development to states and cities without tax incentives. Urban development projects would “come to a grinding halt,” said David Weaver, spokesman for Montgomery County.

“There’s no way we could have brought about the redevelopment of downtown Silver Spring without tax incentives for the developers,” Mr. Weaver said. “That project would not have gotten off the ground.”


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