[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
ECONOMIC DEVELOPMENT AND THE DORMANT COMMERCE CLAUSE: THE LESSONS OF
CUNO V. DAIMLERCHRYSLER AND ITS EFFECT ON STATE TAXATION AFFECTING
INTERSTATE COMMERCE
=======================================================================
JOINT HEARING
BEFORE THE
SUBCOMMITTEE ON THE CONSTITUTION
AND THE
SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
MAY 24, 2005
__________
Serial No. 109-27
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://www.house.gov/judiciary
______
U.S. GOVERNMENT PRINTING OFFICE
21-395 WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
LAMAR SMITH, Texas RICK BOUCHER, Virginia
ELTON GALLEGLY, California JERROLD NADLER, New York
BOB GOODLATTE, Virginia ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah MAXINE WATERS, California
SPENCER BACHUS, Alabama MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana ROBERT WEXLER, Florida
MARK GREEN, Wisconsin ANTHONY D. WEINER, New York
RIC KELLER, Florida ADAM B. SCHIFF, California
DARRELL ISSA, California LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona ADAM SMITH, Washington
MIKE PENCE, Indiana CHRIS VAN HOLLEN, Maryland
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
Philip G. Kiko, General Counsel-Chief of Staff
Perry H. Apelbaum, Minority Chief Counsel
------
Subcommittee on the Constitution
STEVE CHABOT, Ohio, Chairman
TRENT FRANKS, Arizona JERROLD NADLER, New York
WILLIAM L. JENKINS, Tennessee JOHN CONYERS, Jr., Michigan
SPENCER BACHUS, Alabama ROBERT C. SCOTT, Virginia
JOHN N. HOSTETTLER, Indiana MELVIN L. WATT, North Carolina
MARK GREEN, Wisconsin CHRIS VAN HOLLEN, Maryland
STEVE KING, Iowa
TOM FEENEY, Florida
Paul B. Taylor, Chief Counsel
E. Stewart Jeffries, Counsel
Hilary Funk, Counsel
David Lachmann, Minority Professional Staff Member
Subcommittee on Commercial and Administrative Law
CHRIS CANNON, Utah Chairman
HOWARD COBLE, North Carolina MELVIN L. WATT, North Carolina
TRENT FRANKS, Arizona WILLIAM D. DELAHUNT, Massachusetts
STEVE CHABOT, Ohio ADAM SMITH, Washington
MARK GREEN, Wisconsin CHRIS VAN HOLLEN, Maryland
RANDY J. FORBES, Virginia JERROLD NADLER, New York
LOUIE GOHMERT, Texas
Raymond V. Smietanka, Chief Counsel
Susan A. Jensen, Counsel
James Daley, Full Committee Counsel
Stephanie Moore, Minority Counsel
C O N T E N T S
----------
MAY 24, 2005
OPENING STATEMENTS
Page
The Honorable Steve Chabot, a Representative in Congress from the
State of Ohio, and Chairman, Subcommittee on the Constitution.. 1
The Honorable Chris Cannon, a Representative in Congress from the
State of Utah, and Chairman, Subcommittee on Commercial and
Administrative Law............................................. 3
The Honorable Jerrold Nadler, a Representative in Congress from
the State of New York, and Ranking Member, Subcommittee on the
Constitution................................................... 8
WITNESSES
The Honorable Bruce Johnson, Lieutenant Governor of the State of
Ohio
Oral Testimony................................................. 5
Prepared Statement............................................. 7
Ms. Michele R. Kuhrt, Director of Taxes and Financial
Administration, The Lincoln Electric Company, Cleveland, OH
Oral Testimony................................................. 8
Prepared Statement............................................. 11
Professor Walter Hellerstein, Francis Shackelford Distinguished
Professor of Taxation and Law, University of Georgia School of
Law
Oral Testimony................................................. 15
Prepared Statement............................................. 17
Professor Edward A. Zelinsky, Professor of Tax Law, Benjamin N.
Cardozo School of Law, Yeshiva University, New York, NY
Oral Testimony................................................. 32
Prepared Statement............................................. 33
ECONOMIC DEVELOPMENT AND THE DORMANT COMMERCE CLAUSE: THE LESSONS OF
CUNO V. DAIMLERCHRYSLER AND ITS EFFECT ON STATE TAXATION AFFECTING
INTERSTATE COMMERCE
----------
TUESDAY, MAY 24, 2005
House of Representatives,
Subcommittee on the Constitution,
Committee on the Judiciary,
Washington, DC.
The Subcommittees met jointly, pursuant to notice, at 10:14
a.m., in Room 2141, Rayburn House Office Building, the
Honorable Steve Chabot [Chair of the Subcommittee] presiding.
Mr. Chabot. The Committee will come to order. Good morning.
This morning, the Subcommittees on the Constitution and
Commercial and Administrative Law have convened to examine the
status of State economic growth and development through tax
incentive plans in light of the Sixth Circuit's recent decision
in Cuno v. DaimlerChrysler Inc.
I'd like to thank Chairman Cannon for agreeing to co-chair
this hearing, and to Ranking Members Nadler and Watt for their
support for an issue that has implications not just for Ohio,
but for all 50 States.
And this morning is a joint hearing of the Subcommittee on
the Constitution and the Subcommittee on Commercial and
Administrative Law.
I'd also like to thank and welcome our witnesses who are
with us today. And I know we have one who's still to arrive,
but I know they had weather problems and will be coming from
Ohio. We have an expert panel before us, and I know we've put
this hearing together on short notice. And I'd like to thank
all of you for making yourselves available.
It's especially nice to see fellow ``Buckeyes'' sitting
before us. And thank you, Lieutenant Governor Johnson, who's
just entered here--and hope the flight wasn't too bad from
Ohio--for all of your hard work for the State of Ohio.
And Mrs. Kuhrt--am I pronouncing it right? Is it Kuhrt?
Kuhrt, okay--for traveling from our great State to help us
better understand the importance of this issue to States and
businesses, and to help identify the future role for Congress.
In the universal quest to expand economic development,
States are being asked to assume greater responsibility at a
time when budget deficits, job growth, and quality of life
concerns are paramount. They are being asked to respond in an
environment where fewer tools are available to them, and
competition for business investment is not just limited to the
50 States, but the entire world.
To stay competitive, States are increasingly turning to tax
incentive packages, including investment tax credits and
exemptions, as a strategy to encourage business investment. The
Ohio Department of Development, like so many other State
development offices, relies on investment programs to bring new
businesses to areas, which in turn bring new revenue, add new
jobs, maintain existing ones, and add immensely to the quality
of community life. Approximately 40 other States have similar
investment tax credits and rely on them to make their State
more attractive to businesses.
Investment tax incentives are used to attract or maintain
business in a State. As Ms. Kuhrt will tell us later, these
investment tax credits and incentives can also play a large
role in business decisions to locate, expand, and remain in the
United States.
Last fall, the ability of States--specifically, the States
of Ohio, Michigan, Tennessee, and Kentucky--to offer these
incentives and remain competitive was dealt a significant blow
by the United States Court of Appeals for the Sixth Circuit
decision in Cuno v. DaimlerChrysler Inc., which found that
portions of Ohio's tax code were unconstitutional.
At issue were Ohio's manufacturing and equipment investment
tax credit and a related property tax exemption. Although the
Cuno court upheld the property tax exemption, it found that the
machinery and equipment investment tax credit discriminated
against out-of-State activity, in violation of the so-called
``Dormant Commerce Clause.''
The Dormant Commerce Clause is a judicial construct
designed to limit States' ability to regulate interstate
commerce, either expressly or implicitly, because such
authority is vested in Congress by Article I, Section A, Clause
3 of the Constitution.
Although the Sixth Circuit stayed its decision until the
Supreme Court determines whether it will hear the case, it has
left States uncertain as to what their options are for
attracting businesses. For example, the Cuno court acknowledged
that under Supreme Court precedent, if Ohio had chosen to
directly subsidize DaimlerChrysler's purchase of manufacturing
equipment, it likely could have done so without violating the
Dormant Commerce Clause; even though the net effect to
DaimlerChrysler's business would have been the same.
Similarly, the Cuno court upheld Ohio's personal property
tax exemption against a Dormant Commerce Clause challenge,
while striking down the investment tax credit; even though both
taxes encouraged DaimlerChrysler to purchase manufacturing
equipment and locate it in Ohio.
I look forward to hearing from our two legal experts today,
Professors Hellerstein and Zelinsky, to see if they can shed
some light on the Dormant Commerce Clause distinction between
discriminatory, and hence unconstitutional, tax incentives, and
non-discriminatory, and thus lawful, tax incentives; as well as
the distinction between tax incentives and direct subsidies.
I also look forward to hearing from all of our witnesses
views on potential legislative remedies; especially the
proposal introduced by Representative Tiberi of Ohio that would
allow States to continue to use the kind of investment tax
credits that were invalidated in the Cuno decision.
We all recognize that incentive packages for businesses can
sometimes be controversial, and this hearing is not intended to
lend a stamp of approval to every deal struck by a State or
local government. However, we live in an increasingly
competitive market for job creation that is no longer limited
to the 50 States, but also includes foreign countries. States
should have the ability to make their own decisions on these
issues, in order to stay competitive.
The Sixth Circuit's Cuno decision takes Ohio, Michigan,
Kentucky, and Tennessee out of the game, and places them at a
distinct disadvantage, both at home and abroad. As an editorial
from my home-town paper, the Cincinnati Inquirer, suggested
yesterday, ``Congress should give more legal certainty to State
tax incentives and let States craft tax codes as they think
best to attract more jobs.''
With that in mind, I think we all look forward to hearing
from all of our witnesses today. And again, thank each and
every one of you for being here today. And at this time, is
there a Democrat--Mr. Scott, did you want to make a statement
for your side?
Mr. Scott. Mr. Chairman, I would ask unanimous consent that
Mr. Nadler and Mr. Watt, when they arrive, be given the
opportunity to make a statement.
Mr. Chabot. Okay. Without objection, so ordered. And the
gentleman who is co-chairing this hearing, the Chairman of the
Subcommittee on Commercial and Administrative Law, Chris Cannon
from Utah, will now make an opening statement.
Mr. Cannon. Thank you, Mr. Chairman. I am pleased to co-
chair this hearing with my distinguished colleague from Ohio,
Mr. Chabot, on a subject very important to my Subcommittee and
one of increasing relevance in an era that has seen the rise in
development of technology on a scale unimagined by our
forebears.
With the proliferation of international economic
competition, the Congress must take an active role to ensure
that the United States can and will meet the challenges of the
modern world; but also bearing in mind that ours is a Federal
system, and States can be our best partners in this critical
task.
When States take positive actions to foster economic
development, they should be encouraged. When States take
reasonable steps to lower the tax burden that might otherwise
stifle economic development, they should likewise be
encouraged. And when States recognize the importance of
emerging technologies to their own economic growth and
vitality, they should be encouraged in their efforts to develop
those technologies.
This year, the Subcommittee on Commercial and
Administrative Law will consider similar proposals dealing with
State taxation affecting interstate commerce, one of which will
be the legislation relevant to this hearing. In the past, the
Subcommittee has considered many issues concerning State
taxation, including legislation establishing a moratorium on
the imposition of access and discriminatory taxes upon the
Internet, legislation defining the venue for purposes of State
taxation based upon business activities, legislation dealing
with the taxation of non-residents working incidentally and
intermittently in the taxing State, and legislation restricting
State taxation of pension income paid to non-residents.
Underpinning our deliberations has always been an
appreciation that the Constitution grants authority over
interstate commerce to Congress. And that could be no other
way. If States were left to their own devices, the nation would
long ago have failed, mired in a quagmire of economic and
commercial division.
The Founding Fathers granted constitutional authority to
Congress over interstate commerce was virtually a self-evident
proposition for our Federal nation to succeed. The wisdom of
that proposition has been borne out by what we've accomplished
as one of the most prosperous nations in the history of the
world.
But while Congress has the authority, it also necessarily
has the discretion as to when and how best to exercise that
authority. As I have noted, when States act consistent with
sound principles to encourage positive economic development for
the common good, the Congress should first listen and learn
before presuming those States have reached beyond the essential
self-evident proposition established by the Founding Fathers.
I look forward to the testimony today and the analysis and
guidance that such a distinguished panel can provide, and yield
back the balance of my time.
Mr. Chabot. Thank you very much, Chairman Cannon. Are there
any other Members on either side that would like to make an
opening statement?
[No response.]
Mr. Chabot. Okay. If not, we will go to the witnesses. And
without objection, all Members will have five legislative days
to submit additional materials for the hearing record.
And I'd now like to introduce our very distinguished panel
of witnesses here this morning. Our first witness is the
Honorable Bruce Johnson, the Lieutenant Governor of the State
of Ohio. Lieutenant Governor Johnson was appointed to that
position by Governor Bob Taft in January 2005.
Prior to becoming Lieutenant Governor, he served in the
Ohio State Senate, where he became the youngest Chairman of a
Committee in State history when he was appointed to chair the
Senate Judiciary Committee.
Lieutenant Governor Johnson is testifying today in his
capacity as the Director of the Ohio Department of Development,
where he is responsible for coordinating Ohio's economic
development efforts, including the administration of the
investment tax credits at issue in Cuno v. DaimlerChrysler,
Inc. And we welcome you here this morning, Lieutenant Governor.
Our second witness is Michele Kuhrt, who is the Director of
Taxes and Financial Administration for the Lincoln Electric
Company of Cleveland, Ohio. Ms. Kuhrt is a graduate of Case
Western Reserve University, also in Cleveland, Ohio, where she
earned both a bachelor's and master's degree in accounting.
In her capacity as Director of Taxes and Financial
Administration, Ms. Kuhrt is responsible for assessing the
impact of various State and municipal tax regimes in
determining where Lincoln Electric should expand its
operations. And we welcome you here this morning, Ms. Kuhrt.
Our third witness is Professor William [sic] Hellerstein.
Is that correct?
Mr. Hellerstein. Walter Hellerstein.
Mr. Chabot. Is it ``stine'' or ``steen?''
Mr. Hellerstein. ``Stine.''
Mr. Chabot. ``Stine.'' I apologize, professor.
He is the Francis Shackelford Distinguished Professor of
Taxation Law at the University of Georgia School of Law.
Professor Hellerstein received his bachelor's degree, magna cum
laude, from Harvard College, and his law degree from the
University of Chicago Law School, where he was editor-in-chief
of the Law Review.
Professor Hellerstein teaches State and local taxation,
international taxation, and Federal income taxation, and has
been published in numerous journals and law reviews. And we
welcome you here this morning, professor.
Our fourth and final witness is Professor Edwin [sic] A.
Zelinsky, of the Benjamin N. Cardozo School of Law of the
Yeshiva University in New York City, where he teaches tax law.
Professor Zelinsky is a graduate of the Yale College, where he
graduated summa cum laude; as well as the Yale Law School,
where he received his law degree; and Yale graduate school,
where he earned both a master's degree and a master of
philosophy in economics.
Professor Zelinsky has been published in a number of
scholarly journals, and has been a visiting professor at
several distinguished law schools, including Yale Law School,
Columbia Law School, and the NYU School of Law.
Again, we want to welcome all of the witnesses, and we look
forward to hearing from each one of you. And it's the practice
of this Committee to swear in all witnesses appearing before
it, so if you would all please stand and raise your right
hands.
[Witnesses sworn.]
Mr. Chabot. Thank you very much, and you can be seated. And
we'll now hear from the first witness. And I might first of all
make sure that you're aware of our 5-minute rule. You've
probably already been notified by our staff. But we have a
lighting system there. The green light will be on for 4
minutes; a yellow light will let you know when there's one
remaining; and then the red light will come on. We won't gavel
you down immediately upon the red light coming on, but we'd ask
that you wrap up your testimony in as short an order as
possible. And then we'll be questioning after that.
So Lieutenant Governor Johnson, you're recognized for 5
minutes.
TESTIMONY OF THE HONORABLE BRUCE JOHNSON, LIEUTENANT GOVERNOR
OF THE STATE OF OHIO
Mr. Johnson. Thank you, Mr. Chairman, Chairman Chabot and
Chairman Cannon, and to the other distinguished Members of this
Subcommittee. My name is Bruce Johnson. I do serve as the
Lieutenant Governor and the State Development Director of Ohio.
I'm here today to talk specifically about economic
development incentives, how they help grow Ohio's economy, and
the chilling effect of recent court--the recent court case has
on business development in Ohio.
I am pleased to be the development director. Ohio's access
to North American markets, our skilled and dedicated workforce,
and our history of innovation provide great selling points as
we seek to attract new business to our State, and grow the
business that is already located there.
However, the uncertainty created by a recent Federal court
decision has made my job more difficult. In September, the U.S.
Court of Appeals for the Sixth Circuit struck down one of
Ohio's most popular incentive programs, the Ohio Manufacturing
Machinery and Equipment Tax Credit. The M&E tax credit, as we
call it, encourages companies to invest in new machinery and
equipment by offering them a break on their corporate franchise
tax bill.
The case came about after a group of taxpayers opposed our
involvement in a 1998 expansion of DaimlerChrysler's Jeep
facility in Toledo. In order to protect more than 4,000 jobs,
we offered this $1.2 billion expansion project an incentive
package that included up to $96 million in M&E tax credits. In
September 2004, in what has become known as the Cuno case, the
Sixth Circuit Court found that the M&E tax credit portion of
our incentive package unconstitutional.
We live in an increasingly global marketplace, where a
company's very survival depends on its ability to be lean and
efficient. This market demands that I be able to offer
incentives in order for Ohio to compete against its regional
neighbors; not only with other States, but also countries like
Canada and Mexico. Case in point: Ontario, Canada, lists Ohio
as one of its chief competitors, and offers at least nine tax
incentives to encourage investment. You can find them on their
website.
Last year, my department completed projects with more than
193 companies committed to locating or expanding in our State.
These companies committed to creating or retaining 53,000 jobs,
with an average hourly wage of approximately $17, representing
nearly $3.4 billion in combined investment in our State. In
all, we offered these projects more than $200 million in
various incentives, ranging from tax credits to training
grants.
We believe the flexibility to put together aggressive,
customized incentive packages is critical to securing these
projects. Take for example projects like Lab One's $18.4
million expansion of its laboratory facilities in Cincinnati,
or the United States Enrichment Corporation's decision to
invest $1.1 billion creating 500 high-paying jobs in rural
southern Ohio. Ohio won out over facilities in Asia and Mexico
when the Whirlpool Corporation chose to invest $143 million in
several Ohio facilities.
The M&E tax credit, available to any company investing in
new manufacturing equipment in Ohio, is an important incentive.
Since the credit's inception in 1995, the department has
received more than 18,000 filings claiming eligibility for the
credit.
These filings show that companies invested $34.2 billion in
new machinery and equipment, making them eligible for more than
$2 billion in credits through our system. These investments are
critical to the economic prosperity of Ohio because, quite
simply, in manufacturing today jobs follow investments.
Is the availability of a single tax credit alone going to
bring more jobs to Ohio? Probably not. But a State's right to
develop packages may very well be a factor that tips the scale
in favor of one investment over another.
In addition, I believe there is a concern that the court's
ruling could easily lead to questions on other types of
incentives; not only in Ohio, but elsewhere, as well. Jay
Biggins, who is a national expert on incentives, says that,
``The implications of Cuno will spread nationwide,'' and also,
``Some of our clients have already decided to eliminate
jurisdictions from the short list because their incentive
programs could be at risk under the Cuno decision.''
Simply put, Ohio's ability to secure economic prosperity
for our citizens is being hampered. And therein lies the bigger
issue. I firmly believe that it's a State's right, a State's
duty, to pursue prosperity for its citizens. And by striking
down the M&E tax credit, the Sixth Circuit has infringed upon
that right. I believe the court has come to the wrong
conclusion in attempting to interpret congressional silence on
this matter. The good news is that the issue does not need to
be--continue to remain dormant.
Congress has the authority to weigh in on the matter, and I
would encourage this panel to do so. I appreciate the
Chairman's supportive comments. To help secure the prosperity
of Ohio's citizens and the citizens of all States, legislation
should be enacted that returns the power to regulate these
credits to the States.
Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Johnson follows:]
Prepared Statement of Bruce Johnson
Good Morning. My name is Bruce Johnson and I serve as Lt. Governor
and State Development Director of Ohio. I am here today to talk
specifically about economic development incentives, how they help grow
Ohio's economy and the chilling effect a recent court case has on
business.
I am blessed to be the Development Director. Ohio's access to the
North American market, our skilled and dedicated workforce, and our
history of innovation provide great selling points as we seek to
attract new business to our state.
However, the uncertainty created by a recent federal court decision
has made my job more difficult. In September, the U.S. Court of Appeals
for the Sixth Circuit struck down one of Ohio's most popular incentive
programs, the Ohio Manufacturing Machinery and Equipment Tax credit.
The M&E tax credit, as we call it, encourages companies to invest in
new machinery and equipment by offering them a break on their corporate
franchise tax bill.
The case came about after a group of taxpayers opposed our
involvement in a 1998 expansion of DaimlerChrysler's Jeep facility in
Toledo. In order to protect more than 4,000 jobs, we offered this $1.2
billion expansion project an incentive package that included up to $96
million in M&E tax credits. In September 2004, in what has become known
as the Cuno case, the Sixth Circuit Court found the M&E tax credit
portion of our incentive package unconstitutional.
We live in an increasingly global market place, where a company's
very survival depends on its ability to be lean and efficient. This
market demands that I be able to offer incentives in order for Ohio to
compete, not only with other states but also with countries like Canada
and Mexico. Case in point-Ontario, which lists Ohio as a chief
competitor, offers at least nine tax incentives to encourage
investment. (http://www.2ontario.com/software/brochures/Taxation.asp)
Last year my department completed projects with more than 193
companies committed to locating or expanding in Ohio. These companies
committed to creating or retaining more than 53,000 jobs, with an
average hourly wage of $17, representing a nearly $3.4 billion combined
investment in Ohio. In all, we offered these projects more than ($200)
million in various incentives, ranging from tax credits to training
grants.
We believe the flexibility to put together aggressive, customized
incentive packages was critical to securing these projects. Take, for
example, projects like LabOne's $18.4 million expansion of its
laboratory facilities in Cincinnati or the United States Enrichment
Corporation's decision to invest $1.1 billion to create 500 high-paying
jobs in rural, Southern Ohio. And Ohio won out over facilities in Asia
and Mexico when the Whirlpool Corporation chose to invest $143 million
in several Ohio facilities.
The M&E tax credit, available to ANY company investing in new
manufacturing equipment in Ohio, is an important incentive. Since the
credit's inception in 1995, the Ohio Department of Development has
received more than 18,000 filings claiming eligibility for the credit.
These filings show that companies invested $34.2 billion in new
machinery and equipment, making them eligible for more than $2 billion
in credits. These investments are critical to the economic prosperity
of Ohio because, quite simply, jobs follow investments.
Is the availability of a single tax credit alone going to bring
more jobs to Ohio? Probably not. But a state's right to develop
incentive packages may very well be the factor that tips the scale. In
addition, I believe there is concern that the court's ruling could
easily lead to questions on other types of tax incentives, not only in
Ohio, but elsewhere as well. Jay C. Biggins, national expert in
incentives states, ``the implications of Cuno also will spread
nationwide,'' and also, quote ``Some of our clients already have
decided to eliminate jurisdictions from the `short list' because their
incentives programs could be at risk under Cuno.''
Simply put, Ohio's ability to secure economic prosperity for our
citizens is being hampered. And therein lies the bigger issue. I firmly
believe that it is a state's right, and duty, to pursue prosperity for
its citizens, and by striking down the M&E Tax Credit, the Sixth
Circuit has infringed upon that right. I believe the court has come to
the wrong conclusion in attempting to interpret Congressional silence
on this matter. The good news is that this issue does not need to
continue to remain dormant.
Congress has the authority to weigh in on the matter and I
encourage this panel to do so. To help secure the prosperity of Ohio's
citizens, and the citizens of all states, legislation must be enacted
that returns the power to regulate tax credits to the states.
Mr. Chabot. Thank you very much, Lieutenant Governor
Johnson. And before we get to our second witness, we will
recognize the Ranking Member of the Subcommittee on the
Constitution, Congressman Nadler, for the purpose of making an
opening statement.
Mr. Nadler. A very brief opening statement. Thank you, Mr.
Chairman. I want to welcome the panel, and especially Professor
Zelinsky, who teaches in my district.
This issue is especially vexing to Members of this
Committee who are trying to make sense of the current state of
the law. As the witnesses made clear, there is nothing clear
about the court's current jurisprudence. Each one of us has
been involved in local matters for years, and we all have
strong views on the advisability of various business tax
incentives--various business incentives, including tax
incentives. That's probably a debate for another day.
I hope that our witnesses will be able to shed some light
on the current state of the law, such as it is, and the options
that Congress may have in considering what actions, if any, to
take.
I told you the opening statement would be brief. That's it.
Thank you, Mr. Chairman.
Mr. Chabot. Thank you very much, Mr. Nadler.
Ms. Kuhrt, you're recognized for 5 minutes.
TESTIMONY OF MICHELE R. KUHRT, DIRECTOR OF TAXES AND FINANCIAL
ADMINISTRATION, THE LINCOLN ELECTRIC COMPANY, CLEVELAND, OH
Ms. Kuhrt. Thank you. Good morning Chairmen Cannon and
Chabot and Members of the Subcommittees. I'm Michele Kuhrt,
Director of Taxes and Financial Administration at the Lincoln
Electric Company in Cleveland, Ohio. I'm pleased today to have
the opportunity to testify about my company's experience with
the Ohio manufacturer's tax credit and how it's impacted our
business planning.
First, let me say, for those of you when you hear the name
``Lincoln Electric,'' we're not a utility company. Lincoln
Electric is a 110-year-old Cleveland-based manufacturing
company, and the world leader in design, development, and
manufacturing of arc welding and cutting products. Our major
operations and headquarters are in Cleveland, Ohio. We employ
over 3,200 people. We also have manufacturing sites in
California and Georgia, and 26 international manufacturing
locations.
Lincoln has a strong track record of providing excellent-
paying, secure manufacturing jobs for generations of workers in
the Cleveland area. Unlike many manufacturers, Lincoln Electric
has never laid off an employee. Our guaranteed lifetime
employment policy provides that after 3 years of continuous
employment our workers can rest assured that the tides of the
business cycle will not leave them without work. Our piece-work
and company-wide bonus programs allow Lincoln employees to take
a great deal of their personal fortune into their own hands.
This incentive management philosophy has been the basis of a
number of business studies and one of the most widely used
studies at the Harvard Business School.
The Ohio manufacturer's tax credit has played an important
role in determining where Lincoln deploys its capital. Without
this credit, our investments in Ohio certainly would have been
less. Since 1995, when the Ohio manufacturer's credit began,
Lincoln's capital expenditures in Ohio have exceeded a quarter
of a billion dollars.
In recent years, we have added significant manufacturing
capacity, physical expansion to our buildings, knocked down
walls, added space to our plants in Ohio, including new lines
to manufacture welding equipment, consumables, filler rods,
flux cored welding wire, and expanded our steel processing
abilities.
Each of our investment decisions is evaluated based on a
number of return-on-investment criteria; taxes being one of
them. In many analyses we prepare, taxes are a significant and
sometimes deciding factor on where we locate our capital. The
Ohio manufacturing credit is an important benefit to Lincoln
Electric, and one that has tipped the scales in many of our
investment decisions.
Another thing to think about is that the global economy
also forces us to consider investment opportunities outside the
U.S., particularly in low-cost manufacturing locations. Many of
these locations offer exceptional tax incentives, low wages,
and no litigation costs. For a company with a culture like
Lincoln Electric, our preference is to create jobs in the U.S.
Frankly, we excel at manufacturing here. However, the economic
factors present in many of the other jurisdictions can make an
investment decision to locate outside the U.S. overwhelming.
Keep in mind, too, that from the State of Ohio's
perspective, I think the Ohio manufacturer's credit is
ingenious from the State's perspective, because Lincoln
investments in Ohio actually create revenue as well as new jobs
in Ohio. Our Ohio investments increase the State's revenue from
personal property tax, corporate income tax, and what I believe
most significantly is the individual income taxes that those
jobs create when those employees are paid.
In this respect, the State's tax incentives are by no means
a give-away. They're a calculated, wise, one-time investment
made by the State, with an unusually high rate of return, given
the recurring nature of the tax revenues that they generate.
For example, some of the expansions I spoke of earlier
allowed Lincoln to hire 481 new employees in Ohio. It added
payroll of $42 million year over year in Ohio. And I estimated,
in using some very conservative calculations, a recurring
individual income tax revenue of a million dollars for the
State of Ohio.
In return, Ohio gave Lincoln Electric a $250,000-a-year
credit for 7 years--not a bad deal for Ohio. In the end, Ohio
made a very wise choice in investing in Lincoln Electric. And
remember, this does also not include other income taxes and
personal property taxes that the State of Ohio received, as
well as the municipal income tax for the city of Euclid, at
2.85 percent, that that municipality received on those wages,
as well.
As we speak, Lincoln is planning a $20 million expansion of
our consumable manufacturing capabilities, and evaluating
locations in Ohio, Mexico, and Canada. The tax liability
associated with operating in each of these jurisdictions is
vastly different. And we currently cannot rely on the
manufacturing credit in Ohio, given the Cuno decision.
We do like doing business in the U.S., and in Ohio. All
other economic factors being close, we prefer it. But we can't
afford to stay without the cooperation of Federal, State, and
local governments. Our jurisdictions--other jurisdictions are
in competition for corporate investment dollars, and these
governments see our weaknesses and have been aggressive in
pursuing those investment dollars outside the U.S.
State tax incentives like the Ohio manufacturer's credit
are in many cases a critical factor for companies like Lincoln
Electric to construct new facilities, buy equipment, and hire
additional workers.
Thank you for your interest in this issue and supporting
legislation that would ensure that States can continue to
provide tax relief that spurs economic development. Thank you
again, and I look forward to any questions you might have.
[The prepared statement of Ms. Kuhrt follows:]
Prepared Statement of Michele R. Kuhrt
Mr. Chabot. Thank you very much; appreciate your testimony.
Professor Hellerstein, you're recognized for 5 minutes.
TESTIMONY OF PROFESSOR WALTER HELLERSTEIN, UNIVERSITY OF
GEORGIA SCHOOL OF LAW
Mr. Hellerstein. Thank you, Mr. Chairman. I'm honored by
the Chairman's and the Ranking Member's invitation to testify,
and I'm really grateful to the Subcommittee.
Mr. Chabot. Could you pull the mike a little bit closer?
Thank you.
Mr. Hellerstein. Yes, I was saying that I'm grateful for
the Chairman's invitations; honored by them. I also thank the
Committee for holding a hearing on this very, very important
topic of the viability of State tax incentives.
My testimony is devoted to three questions. First, what was
the state of Dormant Commerce Clause law prior to Cuno? Was
Cuno an aberration? And what can Congress do about the present
state of affairs?
On the state of the Dormant Commerce Clause before Cuno,
the fact of the matter is that there was a substantial body of
law that invalidated many tax provisions that, broadly
speaking, would be considered to be tax incentives.
When New York wanted to attract more sales to the New York
Stock Exchange, they wanted to offer it at a lower rate to take
it to the exchange. The court said, ``That's
unconstitutional.'' When Ohio wanted to develop its ethanol
industry and give a credit for the use of Ohio-produced
ethanol, the court struck that down as unconstitutional.
When New York and Wisconsin said, ``Look, if you invest in
New York and Wisconsin, we'll give you the accelerated
depreciation, not if you invest somewhere else,'' kind of
analogous to Cuno, courts--not the Supreme Court, but lower
courts in New York and Wisconsin--struck that down.
So fair to say, we have a broad body of law out there that
was invalidating provisions that people would have regarded as
State tax credits.
That brings me to Cuno. Was Cuno an aberration? I have to
say, ``No.'' I wrote an article \1\ which the court cited to
reach its decision. So I think that Cuno really fits into the
preexisting doctrine.
---------------------------------------------------------------------------
\1\ See Walter Hellerstein and Dan T. Coenen, Commerce Clause
Restraints on State Business Development Incentives, 31 Cornell L. Rev.
789-878 (1996).
---------------------------------------------------------------------------
Is my way the only way of looking at the doctrine?
Absolutely not. Professor Zelinsky here has a view that would,
I think, suggest that most incentives are constitutional.
Professor Enrich, who litigated Cuno, has the view that says
that all of them are unconstitutional. We kind of came down in
the middle.
But the point about which all of us can agree is that the
law is a mess. It's indeterminate. And I think it's fair to say
that even the court calls it a quagmire.
That brings me to the third question, which I think is the
most important one for this panel: What can Congress do about
this mess? First, you can do nothing. If you do nothing, what's
going to happen? There'll be, I think, years, decades, maybe
centuries of uncertainty, as credits get litigated on this
piecemeal basis. Some will be upheld; some will be sustained;
some struck down. But I think we'll have continuing
uncertainty.
If the court denies certiorari in Cuno, I think matters
will be even worse. As we've already heard testimony, Ohio and
Tennessee and Michigan and Kentucky are now laboring under the
yoke of Cuno; where maybe in other jurisdictions they'll say,
``Gee, this stuff is okay.'' So you'll have disparate laws in
different States.
Even if the court grants cert in Cuno, really, the court
decides narrow cases. It limits it to the facts. It leaves to
another day other issues. So even if they resolve Cuno and
bring some relief--or maybe not relief--to the taxpayers,
depending on what they decide, it's not going to solve the
broader problem.
So Congress could do a third--Congress may not do anything.
Maybe you'll legislate narrowly. That's a second option for
Congress, instead of doing nothing.
Why not just reverse Cuno, or if you like Cuno, make it the
law of the land; but at least make it clear. That would, I
think, have some benefit, in that it would clarify the
uncertainty. The problem is, as I've suggested earlier, there's
a broad range of incentives out there, not just the ITC, the
investment tax credit in Ohio, that I think need attention
because the uncertainty exists for all of them.
So it seems to me there's a third option, which is for
Congress to legislate more broadly, to clarify this area. And I
think, frankly, the Voinovich and Tiberi bills really do that.
What they do is they--Congress is in effect saying, ``There's a
certain class of incentives that are acceptable.'' It makes the
law clear.
I think at the same time, it's important for Congress not--
for Congress to preserve, or at least not to disturb, the core
principle of non-discrimination. I don't think anybody wants to
start a new set of trade wars. And again, I think the Voinovich
and Tiberi bills do that.
They don't--they leave undisturbed, I think, some types of
tax provisions that I think most of us would regard as raising
serious constitutional concerns. Georgia shouldn't be able to
say that, ``We're only going to, you know, tax South Carolina
peanuts, but not Georgia peanuts.'' So some things I think
should be left undisturbed.
But I think Congress has a role here to clear up the
uncertainty; not to abandon the non-discrimination principle
altogether, but to make the law clear, to make it
understandable for everyone.
If Congress does nothing, I think you're going to leave it
to taxpayers, tax administrators, State legislatures, simply to
speculate as to whether, on a case-by-case basis, some court is
going to say that this provision is invalid because it, to use
the court's terms, forecloses tax-neutral decisions; or that
this provision is okay because it's simply an appropriate
structuring of State tax law to attract business to the State.
I will be happy to answer questions when the time comes.
Thank you.
[The prepared statement of Mr. Hellerstein follows:]
Prepared Statement of Walter Hellerstein
Mr. Chabot. Thank you very much.
And finally, Professor Zelinsky, you're recognized for 5
minutes.
TESTIMONY OF EDWARD A ZELINSKY, BENJAMIN N. CARDOZO SCHOOL OF
LAW, YESHIVA UNIVERSITY, NEW YORK, NY
Mr. Zelinsky. Thank you, Mr. Chairman. I'm grateful for the
opportunity to speak with you this morning concerning a topic
which has been of great importance both to Professor
Hellerstein and myself, and that is the relationship of State
tax policies to the Dormant Commerce Clause.
The most compelling conclusion I can share with you today
is the importance of keeping distinct three separate concerns.
That is to say, the constitutionality of particular State tax
policies; the economic wisdom of those policies; and the
propriety of congressional intervention.
Consider in the context of the first issue,
constitutionality, two recent controversial decisions: the Cuno
decision of which there has been much discussion; as well as
the decision of the New York Court of Appeals in my own case,
in which I challenged under the Dormant Commerce Clause New
York's policy of taxing non-resident telecommuters on the days
they work at home throughout the nation. I suggest that both of
these cases were decided wrongly, under the Commerce Clause.
To take Cuno first, there's no principled basis for
distinguishing the investment tax credit struck by the Sixth
Circuit from other routine tax State spending policies and
programs, including the property tax relief which the appeals
court sustained. These and other anomalies suggest to me that
Cuno is incorrectly decided.
Equally troubling is the conclusion of the New York courts
under the Commerce Clause that New York can tax non-residents,
thousands of us, on days when we never set foot in New York.
Now, it's important to distinguish the constitutional issue
from the wisdom of those policies. I have grave reservations,
as apparently most of the rest of the panelists do, about Cuno
as a matter of constitutional law. But I have equally grave
reservations as a matter of tax policy about many of the
targeted incentives at issue in Cuno. And I think that's a
distinction that's important for discussion going forward.
In contrast, I think New York's employer convenience rule
is both unwise for New York and the country as a whole, as well
as unconstitutional.
And there is finally the question of what Congress should
do under the Commerce Clause. And allow me to suggest three
non-exclusive criteria for congressional intervention.
First, Federal legislation under the Commerce Clause is
particularly appropriate when States seek unfairly to tax non-
voters. For example, I have no representation in the New York
general assembly. And for that reason, I strongly support the
legislation sponsored by Senator Dodd and Representative Shays
which would preclude any State from taxing a non-resident
telecommuter on the day he works at home.
Second, Congress should exercise its Commerce Clause
authority when conflicting tax policies impede the interstate
mobility of persons, goods, and services. The reality is, the
Dormant Commerce Clause has been one of history's great
successes, creating a common market out of this vast continent
we are blessed with. And I think that the Dodd-Shays
legislation satisfies this criteria, also.
Finally, I think States, in the interest of federalism,
should be permitted to pursue tax policies which impact solely
within that State. The Commerce Clause is not, and should not
be, understood as a barrier to a State implementing tax
policies, whatever their wisdom may or may not be, as long as
those policies impact only within that State. And for that
reason, I am sympathetic to the effort to overturn Cuno
legislatively, even though I am unsympathetic to most State tax
incentives.
Again, I appreciate the opportunity to discuss with you the
relationship of State tax policy and the Dormant Commerce
Clause, a topic which will, with increasing frequency, find
itself on Congress' agenda in the years ahead. **
[The prepared statement of Mr. Zelinsky follows:]
Prepared Statement of Edward A. Zelinsky
I am grateful for this opportunity to discuss the relationship
between state tax policies and the dormant Commerce Clause. As someone
who has written, taught and thought about that relationship, I am both
surprised and pleased by the sudden interest in this subject. That
interest reflects a variety of causes: the proliferation of state tax
incentives; the growth of interstate telecommuting; several
controversial court decisions on these subjects; a growing recognition
that ultimately the Commerce Clause is a grant of authority to Congress
and that, in an increasingly nationalized economy, that authority is
likely to be invoked more and more frequently.
The most compelling conclusion I can share with you today is the
importance of keeping separate three distinct concerns: the
constitutionality of particular state tax policies, the economic wisdom
of those policies, and the propriety of federal legislation.
Consider in the context of constitutionality two of the recent and
more controversial dormant Commerce Clause decisions, the decision of
the Sixth Circuit in Cuno \1\ and the decision of the New York Court of
Appeals in my own case \2\ challenging the constitutionality of New
York's ``convenience of the employer'' doctrine for taxing nonresident
telecommuters on the days they work at their out-of-state homes.
---------------------------------------------------------------------------
\1\ Cuno v. DaimlerChrysler, Inc., 386 F.3d 738 (6th cir. 2004).
\2\ Zelinsky v. Tax Appeals Tribunal of the State of New York, 1
N.Y.3d 85, 769 N.Y.S.2d 464 (2003), cert. den., 541 U.S. 1009 (2004).
---------------------------------------------------------------------------
I suggest that both of these cases were decided wrongly. To take
Cuno first, there is no principled basis for distinguishing the
investment tax credit struck by the Sixth Circuit from other, routine
tax and spending programs of state governments including the property
tax relief which the appeals court sustained. The Sixth Circuit
understands the dormant Commerce Clause as denying DaimlerChrysler an
Ohio investment tax credit because of DaimlerChrysler's pre-existing
Ohio plant but as permitting a credit for new investment to an
otherwise identical competitor without an pre-existing facility in
Ohio. In a similar vein, the Cuno decision indicates that if Ohio,
instead of providing a tax credit, gives DaimlerChrysler a check equal
in value to the credit, such a direct subsidy passes Commerce Clause
muster even though an economically identical income tax credit does
not.
These and other anomalies suggest to me that Cuno is doctrinally
unsound. \3\
---------------------------------------------------------------------------
\3\ For more detailed elaboration of these themes, see Edward A.
Zelinsky, Cuno v. DaimlerChrysler: A Critique, 34 State Tax Notes 37
(October 4, 2004), reprinted in 105 Tax Notes 225 (October 11, 2004).
For some pre-Cuno thoughts along these lines, see Edward A. Zelinsky,
Restoring Politics to the Commerce Clause: The Case for Abandoning The
Dormant Commerce Clause Prohibition on Discriminatory Taxation, 29 Ohio
Northern Univ. L. Rev. 29 (2003).
---------------------------------------------------------------------------
Equally troubling is the conclusion of the New York courts that,
notwithstanding the Commerce and Due Process Clauses, New York can tax
nonresidents such as me on the days we work at home. New York thus
taxes me (as well as thousands of other telecommuters) on days we never
set foot in New York. Most recently, the New York Court of Appeals
upheld New York's income taxation of a telecommuter for the days he
worked at home in Nashville, Tennessee. \4\ It strikes me and virtually
all of the prominent commentators that New York, when it taxes
thousands of nonresidents on days they work at their out-of-state
homes, violates the rule of apportionment which, over the years, has
become central to our understanding of the dormant Commerce Clause. \5\
---------------------------------------------------------------------------
\4\ Huckaby v. Tax Appeals Tribunal, 2005 N.Y. Lexis 497 (March 29,
2005).
\5\ See, e.g., Walter Hellerstein, Reconsidering the
Constitutionality of the ``Convenience of the Employer'' Doctrine, 2003
State Tax Notes Today 91-3 (May 12, 2003); Nicole Belson Goluboff, Put
The Telecommuter Tax Fairness Act in the Passing Lane, 2004 State Tax
Notes Today 211-2 (October 6, 2004).
---------------------------------------------------------------------------
It is important to distinguish the constitutionality of state tax
policies from the wisdom of those policies. I have grave reservations,
as a matter of constitutional law, about the Cuno decision. But I have
equally grave reservations, as a matter of tax policy, about the kind
of targeted tax incentives at issue in Cuno. There is much to commend
tax competition benefitting taxpayers generally. The pressure to keep
taxes reasonable and efficient for taxpayers in general imposes an
important discipline on political decisionmakers and helps taxpayers
and voters to monitor, compare and evaluate the performance of state
and local governments.
On the other hand, I am skeptical of the kind of targeted tax
incentives Ohio gave to DaimlerChrysler. I am doubtful of this kind of
market-manipulating industrial policy whether pursued by the federal
government, by pension trustees or by states and localities. In short,
the fact that tax incentives are constitutional does not make them
wise.
In contrast, New York's employer convenience doctrine is as unwise
as it is unconstitutional. New York now taxes individuals throughout
the nation when they work at home for New York employers. The reported
cases indicate that New York has assessed nonresident income taxes
against individuals working at home as far from New York as Maine,
Florida, New Hampshire and South Carolina. At a time when we should be
encouraging telecommuting, New York's overreaching, even if it were
constitutional, is bad tax policy for the nation's economy.
There is, finally, the question when Congress should intervene,
using its Commerce Clause authority to constrain state tax policies.
Allow me to suggest three, nonexclusive criteria for congressional
intervention: First, federal legislation under the Commerce Clause is
particularly appropriate when states seek to export unfairly their tax
burdens to nonvoters. As a Connecticut resident, I have no vote for or
representation in the New York legislature. Since I have no political
voice in the formation of New York's tax policies aimed at me, it is
appropriate for Congress, where I am represented, to intervene on my
behalf.
For that reason, I strongly support the legislation sponsored by
Senator Dodd and Representative Shays, the Telecommuter Tax Fairness
Act, which would preclude any state from taxing a nonresident
telecommuter on the day he works at home.
Second, Congress should exercise its Commerce Clause authority when
conflicting tax policies impede the interstate mobility of persons,
goods and services, thereby hindering the continental common market
which is the U.S. economy. Again, I think the Dodd-Shays legislation
satisfies this criterion also.
Finally, a state, in the name of federalism, should be permitted to
pursue tax policies which impact solely within that single state. The
Commerce Clause is not a barrier to a state implementing tax policies
however misguided as long as those policies impact only within that
state. For that reason, I am sympathetic to the effort to overturn Cuno
legislatively even though I am unsympathetic to most state tax
incentives.
Again, I appreciate the opportunity to discuss the relationship of
state tax policy to the dormant Commerce Clause, a topic which will,
with increasingly frequency, find itself on Congress' agenda in the
years ahead.
Mr. Chabot. Thank you very much, Professor. I want to thank
all the witnesses for keeping very close to the 5 minutes, as
well. We appreciate that very much.
We're--I might note that I've been informed that we expect
a vote on the floor at approximately 11. It'll only be one
vote, so we may be--that may break into our time here.
But I now recognize myself for 5 minutes, in order to ask
questions. And I'll begin with you, Lieutenant Governor
Johnson, if I can. In your written testimony, you stated that
the ``flexibility to put together aggressive customized
incentive packages was critical'' to the 193 projects that Ohio
landed last year. Could you please describe the process that
your office uses for putting together these packages?
Mr. Johnson. Well, thank you, Mr. Chairman, for the
question. Unfortunately, it does vary, depending on how the
contact is made. Sometimes the contact begins at the local
level, and there is a discussion with the local officials
before the State gets involved. But generally, what happens is
the State has a series of tools to encourage investment.
In 100 percent of the cases in which we encourage
investment, the firm has a choice of location. In other words,
we don't at the State level choose to subsidize retail outlets
that, if they're going to serve the greater Cincinnati
marketplace, they must do so from the greater Cincinnati
marketplace.
We tend to have an unusually large number of these
incentives in the manufacturing industry because
manufacturers--because a large percentage of their marketplace
is outside the State of Ohio, whom they're selling to. They
have choice of location. They could locate either in Indiana,
Illinois--China, or Taiwan, for that matter.
So those tend to be the types of firms. So we make sure
that they're eligible. Then we utilize job creation tax
credits; which, if you could follow the logic in the Cuno case,
you might come to the conclusion that that tax credit was
invalid, as well. That encourages firms to make investments and
add Ohio employees. And we credit back to the company a portion
of the income tax that is paid to the State of Ohio as a result
of that investment over a period of time.
So what we do is we evaluate how much additional payroll is
coming to the State, how much additional property investment is
coming to the State. And then we do a mathematic qualification,
based upon the various tools.
We have a number of tools, including direct incentives and
including direct investment ourselves in infrastructure. And so
we work with the firm to determine what is appropriate for the
facility in the location, and then we make an evaluation on how
much money the State actually ought to put in.
In no case does the State not demand a return on its
investment. We do tend to assume that the investment wouldn't
otherwise happen.
In the case of the M&E tax credit, however, it's not just
in incentive packages. This particular credit is available to
all qualifying investments in the State, whether they come to
the Ohio Department of Development seeking an incentive for a
specific investment or not. So to the extent that they
qualified, they had investments that exceeded their previous 3-
year average, they would be eligible for that particular
investment incentive.
Mr. Chabot. Okay. Thank you very much.
Ms. Kuhrt, let me turn to you, if I can, now. Lincoln
Electric has operations in, as you mentioned, Ohio and
California and Georgia and 26, I believe, other countries you
said. Have you witnessed any so-called race to the bottom among
States when you consider building a new operation? Do any of
these States offer, in your estimation, tax incentives that do
not make economic sense based on the total investment they
bring to an area, including the new jobs that they create?
Ms. Kuhrt. Actually, I'd say that most of the State
incentives that we see are modest, particularly relative to the
international incentives that are offered. The international
incentives might be considered a race to the bottom but--
however, those are in jurisdictions that are in developing
countries, and certainly have many years to recoup their
investment. But the States in particular, no, not at all.
Mr. Chabot. Thank you. Professor Hellerstein, I've only got
1 minute left, so let me move kind of quickly. In your written
testimony, you state that the negative, or Dormant Commerce
Clause--and I think you said this here, too--``is a mess;
albeit a mess that keeps many lawyers and law professors
busy.''
In light of the Cuno decision and the Supreme Court's other
Dormant Commerce Clause jurisprudence, could you as an attorney
tell Lieutenant Governor Johnson what sorts of programs that
the State of Ohio is allowed to implement in order to attract
business and jobs to the States?
Mr. Hellerstein. I could only do so with great difficulty,
and with the usual caveats that lawyers make. I think you're
right. I think it would be--particularly now after Cuno, it
would be extremely difficult. We know some things are okay; if
Ohio simply wants to pay money, a flat subsidy. But other than
a flat subsidy, using the tax system, especially in light of
Cuno, especially in light of the disparate views across the
table of what the Commerce Clause means, I think it would be
extremely difficult.
Mr. Chabot. Okay. Thank you. And my time has expired. I
apologize, Professor Zelinsky, I didn't get to you there. But
at this time, the gentleman from New York, Mr. Nadler, is
recognized for 5 minutes.
Mr. Nadler. Thank you. First, a question, just of
curiosity. Professor Hellerstein, are you the ``Hellerstein''
of the Hellerstein case in New York on property tax assessment
that ruled the State's politics for about 10 years, a number of
decades ago?
Mr. Hellerstein. Yes, I am. And I also think I have a place
in your district, if you are in 67th Street?
Mr. Nadler. Oh, yes.
Mr. Hellerstein. So, yes, it's my father--my father's case.
He didn't make a lot of friends.
Mr. Nadler. He certainly kept the legislature and a couple
of governors busy for about a decade and a half.
Professor Zelinsky, you said that States shouldn't unfairly
tax non-voters; for example, non-resident telecommuters. Do you
make a distinction--I mean, I'm trying to figure out what you
meant by that. So a commuter tax for people who work in the
city of New York, let's say, or the State of New York, and live
in New Jersey; or do you distinguish that from telecommuters?
And what do you mean by ``telecommuters?''
Mr. Zelinsky. Yes, I am in favor of a commuter tax, when
you commute. A telecommuter is someone who doesn't commute,
someone who stays at home. And the phrase ``telecommuting'' has
become accepted to refer to people who are able to conduct
their work one, two, 3 days a week at home. And so, yes, I do
distinguish----
Mr. Nadler. Well, how do you get any nexus to even
constitutionally tax that?
Mr. Zelinsky. Well, I think you have two different issues
here. One is the typical telecommuter, such as myself, is
someone who spends some days in New York and some days out of
New York. That was my case.
Mr. Nadler. So the State is claiming that the days you
spend in New York give you the nexus to constitutionally tax
the State?
Mr. Zelinsky. And I agree with that. The question is the
day when I am not in New York----
Mr. Nadler. Right.
Mr. Zelinsky.--the day when I'm at home in New Haven, is
the day when they want to tax. And that's the issue for myself
and thousands of other people.
If I can, they just projected their taxing power into
Nashville, Tennessee. Mr. Huckaby, whose taxation was upheld,
is someone who spent over 80 percent of his time in Nashville,
Tennessee, and New York taxed him for those days.
Mr. Nadler. I see. Thank you. Ms. Kuhrt, you said that you
thought that most--this isn't my time, I hope. We have these
beepers. I don't know why we still need the bells.
You said that most of the tax incentives that you see are
modest, except internationally. You seem to imply that they
don't really affect--well, let me ask you this. Obviously, you
think that the tax incentives do affect locational decisions.
Ms. Kuhrt. Yes, they do.
Mr. Nadler. And yet, you don't have a race to the bottom,
you said.
Ms. Kuhrt. I think that individually the incentives that
the various States offer are comparable. There's not any one
particular State that I can tell----
Mr. Nadler. All right, but if the incentives the States
offer are comparable, then obviously there's competitive
pressure on every State to offer what Ohio is offering.
Ms. Kuhrt. Uh-huh.
Mr. Nadler. Because otherwise, it would be an advantage to
Ohio. In that sense, you get a race, not to the bottom, but
lower down.
Ms. Kuhrt. Uh-huh.
Mr. Nadler. Why shouldn't--and I'm not talking
constitutional law now; I'm talking economics. From the point
of view of maintaining the State's tax base, and for that
matter, greater prosperity to all the States, why wouldn't it
be a good idea, assuming it were constitutional, to say nobody
gives tax incentives, and let locational decisions be made on
extrinsic economic factors?
Ms. Kuhrt. It certainly is a possible way to look at it.
But many of the State tax incentives target particular
industries. There are some States that offer R&D credits,
trying to attract technology jobs. Ohio offers investment tax
credits.
Mr. Nadler. Right, but my question is, let's assume that
nobody offered an R&D credit. I mean, we don't like R&D
credits. Let's assume nobody offered the R&D credit. Would the
R&D get done someplace; albeit maybe in Tennessee and not in
Georgia? Or would that R&D not happen?
Ms. Kuhrt. Or it would happen in Ontario, Canada, or in
Singapore, or in Poland.
Mr. Nadler. Okay. So you're saying that there's competitive
pressure from abroad to do this.
Ms. Kuhrt. Absolutely.
Mr. Nadler. And everybody's got to participate in the race.
Ms. Kuhrt. Absolutely.
Mr. Nadler. How do you distinguish--I'll ask one of the
professors. On what rational basis can you distinguish a tax
incentive from a non-tax incentive from a straight cash grant?
Let's assume that the State of New York said, ``If you invest
in New York, we'll write a check to you for $100,000.'' On what
basis can you rationally distinguish that from a tax incentive
worth $100,000? And should you?
Mr. Hellerstein. I don't--by rational--I mean, an economist
would think it's irrational. I think a lot of what lawyers do
is irrational. But it seems to me what the Court has said in
making that distinction, you know, ``This is the hand we were
dealt, right? We didn't make this one up.'' It is simply that a
subsidy is less coercive. ``Here's some money. Come to Georgia.
Here's $100.'' Rather than saying, ``Well, you know, if you
come, we'll reduce your tax base, which is already there and
we've already got our grip on you.''
But I agree with you. I think it's not a sensible
distinction. And I think that it would be one that would be
fine to eliminate.
Mr. Zelinsky. Representative, I think this is the rare
occasion when you're hearing the same thing from two law
professors. We agree. I don't think that the distinction that
exists in the Court's case law between direct and tax subsidies
makes any sense at all. And I think that the Court is going to
find itself over the years under increasing pressure, and is
going to find it increasingly difficult to maintain that
distinction. And of course, since this is the Dormant Commerce
Clause, this Congress has the ability to legislate this.
Mr. Nadler. Do you think it should on that subject?
Mr. Zelinsky. I'm in favor of very broad legislation. I
think for a hundred years the Court has been doing Congress'
job. I don't want to be undiplomatic, but the reality is that
the law in this country would be much better if at the turn of
the century--that is, the prior century--Congress had adopted
some very broad rules and begun the process of creating a
framework for the knitting of our economy.
I don't think the Court's happy about the role it's been
forced to do. And, yes, I think there is a very broad role for
this Congress to adopt extremely comprehensive rules, instead
of responding episodically to particular incidents, which has
been the pattern over the last 50 years.
Mr. Nadler. Thank you very much, sir.
Mr. Chabot. The gentleman's time has expired. I think the
Lieutenant Governor wanted to--was chomping at the bit there to
get in.
Mr. Johnson. Well, I agree with the comments from counsel.
And I just wanted to kind of bring light to the fact that the
Administration is considering, in response to the Cuno case,
what we call ``the loop''; which is to take what we call in the
budget process ``tax expenditures,'' credits given to
individual companies, and changing them specifically into
grants.
So the following year, after you made your investment,
after you demonstrated some Ohio tax liability, you would
receive a grant in proportion, exact proportion, to what you
would have been eligible for under the M&E tax credit. It,
under the logic in this case, does not fly in the face of the
United States Constitution, as I would read it.
Mr. Nadler. It comes to exactly the same thing.
Mr. Chabot. Okay. We have a vote on the floor, so we're
going to be in recess here for a short period of time. We're
probably looking at 10 minutes or so. And then we'll--I'd
encourage the Members to come back as quickly as possible, so
we could finish up the questioning. So we are in recess.
[Recess.]
Mr. Chabot. The Subcommittee will now come to order. Take
your seats, please. Okay.
The gentleman from Virginia, Mr. Scott, is recognized for 5
minutes.
Mr. Scott. Thank you, Mr. Chairman. Mr. Chairman, I think
there is a constitutional recognition that labels count. We had
a hearing on the gay marriage constitutional amendment, and it
was clear that if you called it a ``marriage,'' you'd would
have one effect, and if you--like for Massachusetts. But the
same thing coming out of Vermont with a ``civil union'' label
on it would have a different application.
And here we have something, if you call it a ``subsidy,''
you get one result, and if you call it a ``tax credit,'' you
get something else. I've always been interested. You know, if
you have a $15 cash--a $15 credit card price, and a $10 cash
price, if you call that a surcharge for using your credit card,
it's somehow evil, sinister, and illegal; but if you call it a
discount for cash, the same differential is okay.
Let me just ask the two professors, is it accurate to say
that, whether it makes any sense or not, the Supreme Court
recognizes the labels as important?
Mr. Zelinsky. The answer is ``Yes.'' And I also agree with
you that, substantively, this is a situation where I think the
label in fact shouldn't make sense. Sometimes lawyers, of
course, like labels, in the interest of administrability and in
order to make categories that are workable.
But I certainly agree with your observation that, in this
situation, the way policies are, if not labeled, the way
they're structured, even though the economic effect is the
same, the Court has drawn distinctions that I don't think
ultimately are sustainable.
Mr. Scott. Well, sustainable, but they have drawn the
distinction.
Mr. Zelinsky. Most certainly.
Mr. Scott. Do you agree, Professor Hellerstein?
Mr. Hellerstein. Again, Professor Zelinsky and I find
ourselves in violent agreement. [Laughter.]
You know, the distinction makes no economic sense, but it's
there. I guess the only thing I would say in defense of it, I
think that if you look at where it came from, the idea that
there is a difference between spending money and--simply giving
money away, I think--and using a tax mechanism, something that
is coercive perhaps, and giving a little bit of what you would
normally take from somebody, and giving it back, I think that
at the extremes you might find some distinction. But I think in
the end it does evaporate, and it's not a sensible way to
distinguish between valid and invalid ways of attracting
business.
Mr. Scott. Well, we're kind of caught in a situation, then.
If the courts have recognized the constitutionality of the
difference, whether it makes any sense or not, how do we, as
the Legislative Branch, get off trying to overrule what the
courts have said? I know we frequently act as an alternative
court of appeals.
Mr. Zelinsky. No, here let me make it very clear. You are
the authority, under the Commerce Clause. The Dormant Commerce
Clause is simply the Court acting in the absence of
congressional legislation. But anything that the Court does
under the Dormant Commerce Clause, or has done over the last
hundred years, can be, and I think in this case should be
revisited by Congress.
This is not like the Due Process Clause, which is
ultimately Congress' to--or the Court's to decide. The Commerce
Clause is yours, and their Dormant Commerce Clause decisions
are provisional, always subject to revision by the Congress of
the United States.
Mr. Scott. And so if Congress passed a statute authorizing
the distinction, or authorizing the tax incentives, that would
be constitutional?
Mr. Zelinsky. Absolutely.
Mr. Scott. Do we get violent agreement again?
Mr. Hellerstein. Not only violent agreement, but the Court,
the U.S. Supreme Court has again and again told Congress, in
its opinions where it's, somewhat reluctantly perhaps, striking
down a case under the Commerce Clause, that in the end these
really are matters for Congress. It is begging Congress to act.
Mr. Scott. Now, do we have to do--can we just do a kind of
a blanket permission to let States do their own things? Would
that be sufficient? Or do we have to pass each one
individually?
Mr. Zelinsky. Well, historically, Congress has intervened
in some situations. There is a very well known law, 86-272, for
example, under which Congress intervened to deal with some
nexus issues. You can choose to legislate however you want. The
Constitution gives you the right to regulate interstate
commerce, and the Court is only intervening in those situations
where it believes that there is no legislative answer and the
States may be overstepping their boundaries.
So whether you want to continue the pattern, which has been
the historic pattern, of responding episodically, or whether it
is now time for there to be a comprehensive project on
legislative solutions and a legislative framework, that's
ultimately your call. I would be in favor of something
comprehensive.
Mr. Scott. But from a constitutional point of view, either
one would be okay?
Mr. Zelinsky. Yes.
Mr. Chabot. The gentleman's time has expired.
Mr. Scott. But could we have the same to you?
Mr. Hellerstein. Just one brief--I think the best analogy--
Professor Zelinsky referred to cases where Congress was
basically restraining the States from doing something; here,
you're authorizing.
The best example of that is when the Court said that the
insurance industry was interstate commerce, this Congress
passed the McCarran Act which said, no, it's not affected by
the Commerce Clause; basically, withdrew the Commerce Clause,
the negative Commerce Clause, from the insurance industry. You
would be doing the same thing. There's historical precedent for
this.
Mr. Chabot. The gentleman's time has expired.
The gentleman from Utah, who is co-chairing the hearing,
Chairman Cannon, is recognized for 5 minutes.
Mr. Cannon. Thank you, Mr. Chairman.
Ms. Kuhrt, I'm a big fan of Lincoln Electric, and have
followed you for a long time. Can you give me just a little bit
of background on the company? How many employees do you have?
Ms. Kuhrt. We have 3,200 in the U.S., and over 7,000 around
the world.
Mr. Cannon. How many States do you have operations in?
Ms. Kuhrt. We currently pay income tax in 32 States.
Mr. Cannon. And how many do you have actual manufacturing
operations in?
Ms. Kuhrt. Oh, sorry, sorry. California and Georgia, as
well as Ohio.
Mr. Cannon. And how many different countries do you have
operations in?
Ms. Kuhrt. We have manufacturing locations in 26 countries,
and we do business in over 40.
Mr. Cannon. But your equipment is used in every country on
earth, I'm quite certain. And every State.
Ms. Kuhrt. Absolutely. Absolutely. And especially in
countries that are developing, and building bridges and
buildings and pipelines.
Mr. Cannon. Exactly. Sort of like Utah.
Ms. Kuhrt. Exactly.
Mr. Cannon. Developing country. [Laughter.]
Ms. Kuhrt. Exactly. You own a Red welding machine, right?
Mr. Cannon. Actually, I don't own a welding machine; which
really bugs me, because I have some welding to do on my little
property there.
Ms. Kuhrt. Oh, go buy one.
Mr. Cannon. So I have go to out and hire somebody. But, you
know, I don't have time to do it anyway, myself. But if we had
one, it would be--in fact, I have owned one in the past in my
life.
Ms. Kuhrt. The only one to own.
Mr. Cannon. That's right. That's right. You know, you have
an interesting environment, where you have a very simple hiring
process. And you have that simple process of not ever firing
people, because it gives the company a huge benefit. And then,
on the other hand, I suspect that your position is the most
difficult of all the positions in the company, because you're
dealing with these complex State tax laws. Would you like to
see simplification?
Ms. Kuhrt. Oh, absolutely. I might be out of a job, if we
simplified it too much but----
Mr. Cannon. Not with your company, I suspect.
Ms. Kuhrt. No, that's--very good, very good point.
Guaranteed lifetime employment. No, I mean, certainly. And not
just Lincoln Electric, but corporations across this country
invest a lot of money simply administering tax laws. I mean, a
company like Lincoln files, you know, over 2,000 pieces of
paper a year to State and local governments. I mean, that's a
lot of paper to push, and that's just for one little Lincoln
Electric.
Mr. Cannon. And that's under your direction, right?
Ms. Kuhrt. Under my direction.
Mr. Cannon. How many people do you have working for you?
Ms. Kuhrt. I have eight people.
Mr. Cannon. Mr. Johnson, this is an income tax credit,
right? It's not a sales tax reduction? Or how does it actually
work?
Mr. Johnson. The credit is placed on the corporate
franchise tax, which would apply to the income tax if it were
an S-corporation, for example.
Mr. Cannon. Okay, so it's actually--what if a company
doesn't owe taxes? Do they still get money back under the
credit?
Mr. Johnson. No, this particular credit, the M&E tax
credit, is a non-refundable tax credit. So they can carry it
forward, but they can't get a refund check from the State.
Mr. Cannon. Okay. Great. All right. Well, thank you very
much for those particular points.
Professors Hellerstein and Zelinsky, I've got to say, it's
great to have some violent disagreement--or violent agreement.
We have the scenario where my Subcommittee is going to pursue
this aggressively, and I suspect we'll be working together. If
you have any additional comments on the particulars of where we
ought to go, I'd love to hear that from either or both of you.
Mr. Hellerstein. Well, you know, without completely
repeating my testimony, I would say two things. I would say
that it does seem to me that the bills, the Voinovich-Tiberi
bills, are excellent, in the sense that they both authorize
what I think everyone believes--at least, people who are not--
don't spend their life buried in the Commerce Clause--think
makes sense; the kind of incentive that, if somebody comes to
Ohio, you give them some money, effectively, in the form of a
tax credit or a subsidy, that seems to be okay.
At the same time, I think we need to preserve the national
common market that we have. You don't want to, I think,
authorize--you don't want to authorize tariffs. You don't want
Georgia to be able to say that, you know, ``We're going to bar
any product sold in the State if it's manufactured in South
Carolina.''
And I think the bill does that, too, because it doesn't
touch that. So it seems to me we have here the kind of--you
know, on the one hand, authorizing what ought to be authorized;
on the other hand, not disturbing the vibrant--the Commerce
Clause that has really worked quite well--although I think, as
Professor Zelinsky correctly points out, perhaps from the wrong
body; that it should have come from Congress. But the court did
okay, did the best it could on the case-by-case basis, in
trying to preserve the core principle that States shouldn't be
able to blatantly discriminate against, say, products from out
of State. So that would be my----
Mr. Cannon. Thank you. I walked over to the vote with Pat
Tiberi, and invited him to join us if he has a chance. And I
think that he was going to try, but that depends upon how long
we're here. But Professor Zelinsky, do you have any further
comments?
Mr. Zelinsky. Yes. I would make two observations. One is,
again, I would separate out the question of constitutionality
from wisdom. I respectfully disagree with those who think that
these tax incentives are necessarily good. I think they have
their costs and their down sides. On the other hand, I believe
that, constitutionally, States should be allowed to pursue
policies, whether I agree with them or not.
And so I would very much recommend that you focus not on
the economic wisdom, but rather on the question of the
federalist autonomy of the States.
Second of all, I think you ought to consider the
possibility that this is an opportunity to really think about
and legislate some of these broader issues. The historic
pattern over the last hundred years has been that Congress
episodically has responded to particular incidents where the
Court has made rulings Congress wants to overturn.
So as Professor Hellerstein says, there was the McCarran
Act, dealing with insurance. There was 86-272, dealing with
some corporate issues. During the second Clinton term, there
was additional legislation dealing with the question of
retirees and people being taxed on waterways.
It is possible for you to respond to this particular issue
of Cuno; but I think it may be time for Congress, after 200
years, to think more broadly about assuming its full-throated
responsibility under the Commerce Clause, rather than just
responding to particular decisions of the Court.
Mr. Cannon. Thank you, Mr. Zelinsky. I yield back, Mr.
Chairman.
Mr. Chabot. Thank you. The gentleman's time has expired.
The gentleman from Arizona, Mr. Franks, is recognized for 5
minutes.
Mr. Franks. Well, thank you, Mr. Chairman. And thank you,
members of the panel here. It's always nice when you see all
this violent agreement that the gentleman talks about, and I
wanted just to play off of that a moment.
There seems to be general consensus on the Committee that,
in terms of the Commerce Clause in the Constitution, that that
is not really the major issue here. My first question would be
directed to Professor Zelinsky. Do you think that there are any
State tax credits that would be diametrically in conflict with
the Constitution? I mean, other than those that, you know,
would be so esoteric that----
Mr. Zelinsky. The simple answer is: I don't know. As
Professor Hellerstein says, the Court's interpretation, as it
has developed over a hundred years, is very indeterminate. It's
unclear. I could make a very good argument, under the Court's
existing case law, that just about any State tax provision is
unconstitutional.
When I criticize the Sixth Circuit, I have to say at some
level I also sympathize with these folks, because I think they
were given a very difficult hand to play by the Supreme Court
of the United States, and it's fairly incoherent tax law. The
Court, itself, on occasion has said that its own tax law is a
quagmire.
So I have to say to you, we really don't know in many ways
what the Dormant Commerce Clause means; which is a strong
argument for this Congress legislating to give us some rules.
Mr. Franks. So it's your testimony, essentially, that the
Court's confusion is based on the omission of Congress, rather
than the commission?
Mr. Zelinsky. Correct. The reality is that the Framers
thought, I believe, from my reading of historic evidence--
expected Congress to be an active regulator of interstate
commerce. For a variety of reasons, which I'm not sure we
totally understand, the pattern which developed largely after
the Civil War, and then accelerated during the 20th century,
was the Court acting as the Dormant Commerce Clause decision-
maker.
And I'm suggesting that I do think that it is inevitable
that more and more of these issues are going to have to be
dealt with legislatively.
Mr. Franks. Thank you, professor. Lieutenant Governor
Johnson, I know, as someone who is an executive in State
government, you have to essentially balance the economic
interests of your State; doing everything that you can to
enhance productivity, and still be able to sustain the needs
and the revenues to run government. And those things are quite
often, you know, in a dynamic crucible.
So I guess my question to you, if Congress did pass
legislation comprehensively, as an executive of state, what
would be two or three of the seminal, foundational principles
that you think should be involved?
Mr. Johnson. Well, thank you, Mr. Chairman, to the Member.
The State is currently reviewing in a comprehensive way its tax
code. And I would leave it to the States to make determinations
about what are the issues that are in the best interests of the
people of that State, as it relates to the tax code; without
allowing the State to unduly discriminate against out-of-State
products. I think that is the issue.
Our tax provisions and our credits apply to activity in the
State, regardless of whether or not the company itself is an
in-State resident or an out-of-State corporation. And I think
that's critically important.
I think there are a number of items in Senator Voinovich's
bill and Representative Tiberi's bill that kind of outline
those areas which most of us would consider to be out of
bounds, in terms of permitting discrimination that would raise
tariffs, for example, for the interstate transportation of
goods; which we don't support, either.
So the fact that we do compete against some folks in our
neighboring States does not mean that we want to intentionally
discriminate. We just want to encourage investment in our
State. Investment in our State means that the economy of the
United States grows. Investment in our State means that the job
base in the United States of America is growing.
And some of our most critical competitors are not the
States of Indiana or Michigan; it's China and Mexico, and even
Ontario, Canada, which has become incredibly aggressive in
these issues.
Mr. Franks. Mr. Chairman, last question. Mr. Johnson, if
you could write legislation that would correct the problem as
far as you're concerned in this present case, what would you
rifle-in on? What would be the principal----
Mr. Johnson. Thank you, Mr. Chairman, to the Member. I'm
reading now from--this is the second page of Senator
Voinovich's piece. And it says that, ``Authorize the State to
provide any person for economic development--'' any State ``--
development purposes, tax incentives that would otherwise be
cause or a source of discrimination against the Interstate
Commerce Clause.''
And then it lists kind of the exceptions, which I think is
where you're headed, what types of things. In other words, it
would generally provide States the authority to do this, to
provide economic development incentives. And then it would say,
``Then there are some exceptions. Can't be dependent upon the
State or the country of incorporation.'' I think that's
important. ``Commercial domicile or residence requires the
recipient of the tax incentive to acquire, lease, or use, or
provide services or property produced in State.'' In other
words, if somebody uses the M&E tax credit in Ohio, they don't
have to use an Ohio manufacturer for that equipment. They can
buy their equipment any place, so long as they install it in
the State of Ohio.
It's reduced or eliminated as a result of an increase in
out-of-State activity. In other words, I can't penalize Lincoln
Electric for investing in Michigan--God forbid--or India.
[Laughter.]
There's still a little rivalry between Ohio and Michigan.
And so I think we worked with Representative Tiberi and
with Senator Voinovich in the development of the legislation.
And we think that it preserves those elements of the Dormant
Commerce Clause that ought to be preserved and, at the same
time, it kind of sets out some guidance for State tax
administrators.
Mr. Franks. Thank you, Mr. Chairman.
Mr. Chabot. Thank you. The gentleman's time has expired.
That concludes--unless the gentleman from Virginia has any
other questions or anything, that concludes the questions from
the Members of the panel here.
I want to thank--and I know Chairman Cannon also shares in
this and wants to thank the very distinguished panel for your
testimony here this morning. It's been very helpful. I think
each of you has contributed immensely to this issue.
And we will take all of your testimony today in
consideration as we deal with this in this Committee, and
ultimately probably on the floor of the House of
Representatives. So thank you for your testimony this morning.
If there's no further business to come before the two
Committees, we're adjourned. Thank you.
[Whereupon, at 11:42 a.m., the joint Subcommittees were
adjourned.]