I remember wondering a while back whether states violate the Dormant Commerce Clause when offering business tax breaks to lure them into their local economies. I’d be interested in some back and forth on whether tax incentives are good. I’ll leave it that simple.
Apart from the Constitutional question, the crux of the issue, so far in my thinking, resides with the market. Do business-hungry incentives distort the market? (the market, I reckon, being the set of considerations a business ponders when locating.)
I suppose everything is allowed within the scope of considerations that a participant in a market may encounter. That may be; so a distortion, in this respect, is one that is overly-prominent such that the market participant is unable to make a reasoned decision. Beyond the market as existing between the buyer (a business looking to site) and a seller (a state looking to give tax breaks), the effects of such a distortion may play out among the public–indeed, that’s the point, I reckon. A state’s tax break might get some folks jobs in a region, but might take away other folks’ state funded quality roads, education, or utilities.
Enough of that, though, as I wanted to leave this an open question.
August 1, 2008 at 12:57 pm
If we decide we don’t like tax incentives, I would note that standing is a perpetual problem for plaintiffs wishing to challenge such incentives under the Dormant Commerce Clause.
Quote from the recent NC Court of Appeals opinion tossing out a challenge to Winston-Salem’s Dell tax incentives:
“[I]t is well-established under federal law
that claims under the Dormant Commerce Clause require plaintiffs to demonstrate that they are prejudiced by the operation of the challenged statute in order to establish standing. See, e.g., Gen.
Motors Corp. v. Tracy, 519 U.S. 278, 286(1997) (holding that, to establish standing to challenge state tax law under Dormant Commerce Clause, plaintiffs must demonstrate “cognizable injury”).”
– Blinson v. State, Oct. 16, 2007. Whole opinion is available here:
http://www.ncicl.org/litigation-library/dell-litigation/acrobat/2007.10.16-dell-coa-opinion.pdf
August 1, 2008 at 5:04 pm
good point.
i’m struggling, on the broader point, to pinpoint what aspects of business-luring tax incentives i find unfair. dormant commerce clause is my sort-of “well, it might not even be constitutionally acceptable” kicker…but there are nagging items that seems more basically unfair (legally sound or not). There are also the pros, but we can come to those later.
getting towards one aspect: the state government is deciding, through tax powers, what businesses it wants to lure. the government, then, has a say that might unreasonably precede the communities. With its tax break in pocket, the government becomes what seems to be an unfair player.
sort of like a realtor saying, if you buy this house, i’ll give you a flat screen tv as well. that sort of thing might not be fully ‘unfair’ in the sense that all is fair in the market…but it places the buyer’s decision away from the merits of the house to the merits of the side offers.