       RECOMMENDED FOR FULL-TEXT PUBLICATION
            Pursuant to Sixth Circuit Rule 206            2     Cuno, et al. v. DaimlerChrysler                No. 01-3960
    ELECTRONIC CITATION: 2004 FED App. 0293P (6th Cir.)         Inc., et al.
                File Name: 04a0293p.06
                                                          OFFICE OF THE ATTORNEY GENERAL OF OHIO,
                                                          Columbus, Ohio, for Appellees. ON BRIEF: Peter D.
UNITED STATES COURT OF APPEALS                            Enrich, NORTHEASTERN UNIVERSITY SCHOOL OF
              FOR THE SIXTH CIRCUIT                       LAW, Boston, Massachusetts, Terry J. Lodge, Toledo, Ohio,
                _________________                         for Appellants. Charles A. Rothfeld, MAYER, BROWN,
                                                          ROWE & MAW, Washington, D.C., Sharon A. Jennings,
                                                          Robert C. Maier, OFFICE OF THE ATTORNEY GENERAL
 CHARLOTTE CUNO , et al.,         X                       OF OHIO, Columbus, Ohio, Albin Bauer, John T. Landwehr,
         Plaintiffs-Appellants, -                         EASTMAN & SMITH, Toledo, Ohio, Truman A.
                                   -                      Greenwood, Theodore M. Rowen, SPENGLER
                                   -  No. 01-3960         NATHANSON, Toledo, Ohio, Samuel J. Nugent, Barbara E.
            v.                     -
                                    >                     Herring, OFFICE OF THE CITY OF TOLEDO LAW
                                   ,                      DEPARTMENT, Toledo, Ohio, for Appellees.
 DAIMLERCHRYSLER, INC., et         -
 al.,                              -                                           _________________
        Defendants-Appellees. -
                                   -                                               OPINION
                                  N                                            _________________
       Appeal from the United States District Court         MARTHA CRAIG DAUGHTREY, Circuit Judge. The
       for the Northern District of Ohio at Toledo.       plaintiffs initiated this litigation in state court, challenging the
      No. 00-07247—David A. Katz, District Judge.         validity of certain state tax credits and local property tax
                                                          abatements that were granted to DaimlerChrysler Corporation
               Argued: February 4, 2003                   as an inducement to the company to expand its business
                                                          operations in Toledo, Ohio. They contend that the tax scheme
         Decided and Filed: September 2, 2004             discriminates against interstate commerce by granting
                                                          preferential treatment to in-state investment and activity, in
   Before: SILER, DAUGHTREY, and COLE, Circuit            violation of the Commerce Clause of the United States
                     Judges.                              Constitution and the Equal Protection Clause of the Ohio
                                                          Constitution. After the defendants removed the action to
                  _________________                       federal court, the district court entered an order dismissing the
                                                          complaint under Federal Rules of Civil Procedure 12(b)(1)
                       COUNSEL                            and 12(b)(6) for failure to state a claim. Because we conclude
                                                          that the investment tax credit runs afoul of the Commerce
ARGUED:         Peter D. Enrich, NORTHEASTERN             Clause, we can affirm only part of the district court’s
UNIVERSITY SCHOOL OF LAW, Boston, Massachusetts,          judgment.
for Appellants. Charles A. Rothfeld, MAYER, BROWN,
ROWE & MAW, Washington, D.C., Sharon A. Jennings,

                            1
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                                              Inc., et al.              Inc., et al.

  I. FACTUAL AND PROCEDURAL BACKGROUND                             of the three following years. See Ohio Rev. Code Ann.
                                                                   § 5733.33(D).
  In 1998, DaimlerChrysler entered into an agreement with
the City of Toledo to construct a new vehicle-assembly plant         The personal property tax exemption is authorized under
near the company’s existing facility in exchange for various       §§ 5709.62 and 5709.631; it permits municipalities to offer
tax incentives. DaimlerChrysler estimated that it would            specified incentives to an enterprise that “agrees to establish,
invest approximately $1.2 billion in this project, which would     expand, renovate, or occupy a facility and hire new
provide the region with several thousand new jobs. In return,      employees, or preserve employment opportunities for existing
the City and two local school districts agreed to give             employees” in economically depressed areas. Ohio Rev.
DaimlerChrysler a ten-year 100 percent property tax                Code Ann. § 5709.62(C)(1). An exemption may be granted
exemption, as well as an investment tax credit of 13.5 percent     “for a specified number of years, not to exceed ten, of a
against the state corporate franchise tax for certain qualifying   specified portion, up to seventy-five per cent, of the assessed
investments. The total value of the tax incentives was             value of tangible personal property first used in business at
estimated to be $280 million.                                      the project site as a result of the agreement.” Ohio Rev. Code
                                                                   Ann. § 5709.62(C)(1)(a). The exemption may exceed 75
  Ohio’s investment tax credit grants a taxpayer a non-            percent with consent of the affected school districts. See
refundable credit against the state’s corporate franchise tax if   Ohio Rev. Code Ann. § 5709.62(D)(1).
the taxpayer “purchases new manufacturing machinery and
equipment during the qualifying period, provided that the new        The district court held that the investment tax credit and the
manufacturing machinery and equipment are installed in             property tax exemption do not violate the Commerce Clause
[Ohio].” Ohio Rev. Code Ann. § 5733.33(B)(1). The                  because, although “an increase in activity in Ohio could
investment tax credit is generally 7.5 percent “of the excess      increase the credit and exemption amount” under the two
of the cost of the new manufacturing machinery and                 statutes, an increase in activity outside the state would not
equipment purchased during the calendar year for use in a          decrease the amount of the tax credit or exemption and
county over the county average new manufacturing                   therefore would not run afoul of the United States Supreme
machinery and equipment investment for that county.” See           Court’s ruling in Westinghouse Electric Company v. Tully,
Ohio Rev. Code Ann. § 5733.33(C)(1). The rate increases to         466 U.S. 388, 400-01 (1984). From that decision, the
13.5 percent of the cost of the new investment if it is            plaintiffs now appeal.
purchased for use in specific economically depressed areas.
See Ohio Rev. Code Ann. § 5733.33(C)(2), (A)(8)-(13). The                                 II. ANALYSIS
credit may not exceed $1 million unless the taxpayer has
increased its overall ownership of manufacturing equipment           We review de novo a district court’s order granting a
in the state during the year for which the credit is claimed.      motion to dismiss for failure to state a claim upon which
See Ohio Rev. Code Ann. § 5733.33(B)(2)(a). To the extent          relief may be granted. See Inge v. Rock Fin. Corp., 281 F.3d
that the credit exceeds the corporation’s total Ohio franchise     613, 619 (6th Cir. 2002). In considering a motion to dismiss
tax liability in a particular year, the balance of the credit is   pursuant to Rule 12(b)(6), all well-pleaded factual allegations
carried forward and can be used to reduce its liability in any     of the complaint must be accepted as true and the complaint
                                                                   construed in the light most favorable to the plaintiffs. Id. It
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                                               Inc., et al.                Inc., et al.

is well-settled that dismissal of a complaint is proper “only if      it prevent a state from “compet[ing] with other States for a
it is clear that no relief could be granted under any set of facts    share of interstate commerce” so long as “no State []
that could be proved consistent with the allegations.” Hishon         discriminatorily tax[es] the products manufactured or the
v. King & Spalding, 467 U.S. 69, 73 (1984)(citing Conley v            business operations performed in any other State.” Boston
Gibson, 355 U.S. 41, 45-46 (1957)).                                   Stock Exch. v. State Tax Comm’n, 429 U.S. 318, 336-37
                                                                      (1977); see also Bacchus Imports, Ltd. v. Dias, 468 U.S. 263,
  On appeal, the plaintiffs’ primary contention is that the           272 (1984) (the federal Commerce Clause “limits the manner
Ohio statutes authorizing the investment tax credit and               in which States may legitimately compete for interstate
personal property tax exemption violate the Commerce                  trade”). Rather, the parties dispute whether Ohio’s method
Clause of the United States Constitution. Secondarily, the            for encouraging new economic investment – conferring
plaintiffs claim that the tax incentives violate Ohio’s Equal         investment tax incentives and property tax exemptions –
Protection Clause.                                                    discriminates against interstate commerce.
A. Commerce Clause Claim                                                The United States Supreme Court has never precisely
                                                                      delineated the scope of the doctrine that bars discriminatory
  The United States Constitution expressly authorizes                 taxes. The Court has made clear, however, that a tax statute’s
Congress to “regulate Commerce with foreign Nations, and              “constitutionality does not depend upon whether one focuses
among the several States,” U.S. Const. art. I, § 8, cl. 3, and        upon the benefitted or the burdened party.” Bacchus Imports,
the “negative” or “dormant” aspect of the Commerce Clause             468 U.S. at 273. The fact that a statute “discriminates against
implicitly limits the State’s right to tax interstate commerce.       business carried on outside the State by disallowing a tax
A tax provision satisfies the requirements of the Commerce            credit rather than by imposing a higher tax” is therefore
Clause if (1) the activity taxed has a substantial nexus with         legally irrelevant. Westinghouse Elec. Corp. v. Tully, 466
the taxing State; (2) the tax is fairly apportioned to reflect the    U.S. 388, 404 (1984).
degree of activity that occurs within the State; (3) the tax does
not discriminate against interstate commerce; and (4) the tax            In general, a challenged credit or exemption will fail
is fairly related to benefits provided by the state. See              Commerce Clause scrutiny if it discriminates on its face or if,
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279               on the basis of “a sensitive, case-by-case analysis of purposes
(1977).                                                               and effects,” the provision “will in its practical operation
                                                                      work discrimination against interstate commerce,” West Lynn
   The parties do not dispute that the tax provisions at issue        Creamery v. Healy, 512 U.S. 186, 201 (1994)(citations
have a sufficient nexus with the state, are fairly apportioned,       omitted), by “providing a direct commercial advantage to
and are related to benefits provided by the state. Nor do the         local business.” Bacchus Imports, 468 U.S. at 268 (citations
parties dispute that it is legitimate for Ohio to structure its tax   omitted). “‘[D]iscrimination’ simply means differential
system to encourage new intrastate economic activity.                 treatment of in-state and out-of-state economic interests that
Indeed, the United States Supreme Court has indicated that            benefits the former and burdens the latter.” Oregon Waste
the Commerce Clause “does not prevent the States from                 Sys., Inc. v. Dep’t. of Envtl. Quality, 511 U.S. 93, 99 (1994).
structuring their tax systems to encourage the growth and             A state tax provision that discriminates against interstate
development of intrastate commerce and industry,” nor does            commerce is invalid unless “it advances a legitimate local
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                                              Inc., et al.                Inc., et al.

purpose that cannot be adequately served by reasonable               amendment created a 50 percent reduction in the tax rate on
nondiscriminatory alternatives.” Id. at 101 (quoting New             transfers by nonresidents and limited liability on transfers of
Energy Co. of Ind. v. Limbach, 486 U.S. 269, 278 (1988)).            large blocks of shares as long as the sales were made in New
                                                                     York. See id. at 324. As a result, the amendment caused
1. Investment Tax Credit                                             transactions involving out-of-state sales to be taxed more
                                                                     heavily than transactions involving in-state sales. See id. at
   Although the investment tax credit at issue here is equally       330 - 31. The Court held that the reduction offended the
available to in-state and out-of-state businesses, the plaintiffs    Commerce Clause’s anti-discrimination principle by
nevertheless maintain that it discriminates against interstate       converting a tax that was previously “neutral as to in-state and
economic activity by coercing businesses already subject to          out-of-state sales” into one that which would induce a seller
the Ohio franchise tax to expand locally rather than out-of-         to trade through a New York broker in order to reduce its tax
state. Specifically, any corporation currently doing business        liability. See id. at 330-32. In doing so, New York
in Ohio, and therefore paying the state’s corporate franchise        effectively “foreclose[d] tax-neutral decisions” and “creat[ed]
tax in Ohio, can reduce its existing tax liability by locating       both an advantage for the exchanges in New York and a
significant new machinery and equipment within the state, but        discriminatory burden on commerce to its sister States.” Id.
it will receive no such reduction in tax liability if it locates a   at 331. The diversion of interstate commerce from the most
comparable plant and equipment elsewhere. Moreover, as               economically efficient channels that resulted from New
between two businesses, otherwise similarly situated and each        York’s use of “its power to tax an in-state operation as a
subject to Ohio taxation, the business that chooses to expand        means of ‘requiring [other] business operations to be
its local presence will enjoy a reduced tax burden, based            performed in the home state,’” id. at 336 (quoting Pike v.
directly on its new in-state investment, while a competitor          Bruce Church, Inc., 397 U.S. 137, 145 (1970)), was seen by
that invests out-of-state will face a comparatively higher tax       the Court as “wholly inconsistent with the free trade purpose
burden because it will be ineligible for any credit against its      of the Commerce Clause.”
Ohio tax.
                                                                        Shortly thereafter, in Maryland v. Louisiana, 451 U.S. 725
   The plaintiffs’ argument principally relies on the Supreme        (1981), the Supreme Court reviewed a Louisiana statute that
Court’s own explanation of its Commerce Clause                       imposed a first-use tax on natural gas extracted from the
jurisprudence in cases invalidating tax schemes that                 continental shelf in an amount equivalent to the severance tax
encourage the development of local industry by imposing              imposed on natural gas extracted in Louisiana. See id. at 731.
greater burdens on economic activity taking place outside the        Taxpayers subject to the first-use tax were entitled to a direct
state. In Boston Stock Exchange, for example, the Supreme            tax credit on any Louisiana Severance Tax owed in
Court held unconstitutional amendments to New York’s                 connection with the extraction of natural resources within the
securities transfer tax that aimed to offset the competitive         state. See id. at 732. Most Louisiana consumers of offshore
advantage that the transfer tax otherwise created for out-of-        gas were eligible for tax credits and exemptions, but the tax
state exchanges that did not tax transfers. See Boston Stock         applied in full to offshore gas moving through and out of
Exchange, 429 U.S. at 323 - 24. Prior to the amendment,              state. See id. at 733. Noting that the state severance tax
New York uniformly taxed in-state transfers of securities            credit “favor[ed] those who both own [offshore] gas and
without regard to the place of sale. See id. at 322. The             engage in Louisiana production” and that the “obvious
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                                              Inc., et al.               Inc., et al.

economic effect of this Severance Tax Credit [was] to              of Ohio’s “power to tax an in-state operation as a means of
encourage natural gas owners involved in the production of         ‘requiring [other] business operations to be performed in the
[offshore] gas to invest in mineral exploration and                home State.’” Boston Stock Exch., 429 U.S. at 336 (quoting
development within Louisiana rather than to invest in further      Bruce Church, 397 U.S. at 145). Thus, they contend that like
[offshore] development or in production in other States,” the      the tax credit in Maryland v. Louisiana, the economic effect
Court held that the statute “unquestionably discriminate[d]        of the Ohio investment tax credit is to encourage further
against interstate commerce in favor of local interests.” Id. at   investment in-state at the expense of development in other
756 - 57.                                                          states and that the result is to hinder free trade among the
                                                                   states. Cf. Boston Stock Exch., 468 U.S. at 336.
   In Westinghouse Electric Corp. v. Tully, 466 U.S. 388
(1984), the Supreme Court invalidated a New York franchise           The defendants maintain that the Supreme Court’s opinions
tax that gave corporations an income tax credit based on the       should be read narrowly to hold that tax incentives, like the
portion of their exports shipped from New York. Under the          Ohio tax credit, are permissible as long as they do not
law, income from a subsidiary engaged exclusively in exports       penalize out-of-state economic activity, citing Philip M.
was to be combined with the income of its parent company           Tatarowicz & Rebecca F. Mims-Velarde, An Analytical
for state tax purposes. See id. at 393. In an effort to provide    Approach to State Tax Discrimination Under the Commerce
an incentive to increase export activity in New York, the          Clause, 39 Vand. L. Rev. 879, 929 (1986) (elaborating upon
parent company was given a partially offsetting credit against     and applying this distinction to the Court’s precedents). In
income tax attributable to the subsidiary’s income generated       their view, the Commerce Clause is primarily concerned with
from New York exports. See id. Because the credit was              preventing economic protectionism – that is, regulatory
based on the ratio of the subsidiary’s New York exports to its     measures designed to benefit local interests by burdening out-
income from all export shipments, a company’s overall New          of-state commerce. According to their theory, the only tax
York tax liability would decrease as exports from New York         credits and exemptions that would run afoul of the Commerce
increased relative to exports from other states. Conversely, a     Clause fall into two categories: those that function like a tariff
company’s New York tax liability increased when exports            by placing a higher tax upon out-of-state business or products
from New York decreased relative to exports from other             and those that penalize out-of-state economic activity by
states. See id. at 401. The Court found that the tax scheme        relying on both the taxpayer’s in-state and out-of-state
“penalize[d] increases in the [export] shipping activities in      activities to determine the taxpayer’s effective tax rate.
other states,” id. at 401, and that it was therefore a
discriminatory tax that advantaged New York firms “by                Although it is arguably possible to fit certain of the
placing ‘a discriminatory burden on commerce to its sister         Supreme Court’s cases into this framework, it is clear that the
States.’” Id. at 406 (quoting Boston Stock Exchange, 429 U.S.      Court itself has not adopted this approach in analyzing
at 331).                                                           dormant Commerce Clause cases, undoubtedly because it
                                                                   rests on the distinction between laws that benefit in-state
  Analogizing to the provisions considered in Boston Stock         activity and laws that burden out-of-state activity. Such a
Exchange, Maryland v. Louisiana, and Westinghouse, the             distinction is tenuous in light of the Court’s acknowledgment
plaintiffs argue that the investment tax credit at issue here      that “[v]irtually every discriminatory statute allocates benefits
encourages the development of local business through the use       or burdens unequally; each can be viewed as conferring a
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                                             Inc., et al.               Inc., et al.

benefit on one party and a detriment on the other, in either an   2. Personal Property Tax Exemption
absolute or relative sense.” Bacchus Imports, 468 U.S. at
273. Indeed, economically speaking, the effect of a tax              The plaintiffs maintain that the discriminatory characteristic
benefit or burden is the same. Moreover, the Court’s              of the City’s personal property tax exemption rests not on the
command to examine the practical effect of challenged tax         fact that only in-state property is eligible for exemption, but
schemes suggests that “constitutionality [should] not depend      rather on the conditions that Ohio places on eligibility –
upon whether one focuses upon the benefitted or the burdened      conditions that require beneficiaries of the exemptions to
party.” Id.; see also Westinghouse, 466 U.S. at 404 (“Nor is      agree to maintain a specified level of employment and
it relevant that New York discriminates against business          investment in the state. The effect, they argue, is to subject
carried on outside the State by disallowing a tax credit rather   two similarly situated owners of Ohio personal property to
than by imposing a higher tax.”).                                 differential tax rates. A taxpayer who agrees to focus his
                                                                  employment or investment in Ohio receives preferential
  Although the defendants liken the investment tax credit to      treatment in the form of a tax break, while a taxpayer who
a direct subsidy, which would no doubt have the same              prefers to preserve the freedom to hire or invest elsewhere
economic effect, the Court has intimated that attempts to         does not.
create location incentives through the state’s power to tax are
to be treated differently from direct subsidies despite their        Although conditions imposed on property tax exemptions
similarity in terms of end-result economic impact. The            may independently violate the Commerce Clause, conditional
majority in New Energy noted in dicta that subsidies do not       exemptions raise no constitutional issues when the conditions
“ordinarily run afoul of [the Commerce Clause]” because they      for obtaining the favorable tax treatment are related to the use
are not generally “connect[ed] with the State’s regulation of     or location of the property itself. Stated differently, an
interstate commerce.” New Energy Co., 486 U.S. at 278; see        exemption may be discriminatory if it requires the beneficiary
also West Lynn Creamery, 512 U.S. at 199 n.15 (“We have           to engage in another form of business in order to receive the
never squarely confronted the constitutionality of subsidies,     benefit or is limited to businesses with a specified economic
and we need not do so now. We have, however, noted that           presence. Cf. Maryland, 451 U.S. at 756-57 (finding
‘[d]irect subsidization of domestic industry does not             unconstitutional a tax benefit that encouraged natural gas
ordinarily run afoul’ of the negative Commerce                    owners to invest in other forms of mineral exploration and
Clause.”(quoting New Energy Co., 486 U.S. at 278)). Thus,         development within Louisiana rather than investing further in
the distinction between a subsidy and a tax credit, in the        natural gas development outside the state). However, if the
constitutional sense, results from the fact that the tax credit   conditions imposed on the exemption do not discriminate
involves state regulation of interstate commerce through its      based on an independent form of commerce, they are
power to tax.                                                     permissible.

  In short, while we may be sympathetic to efforts by the City      Contrary to the plaintiffs’ assertions, the conditions
of Toledo to attract industry into its economically depressed     imposed on the receipt of the Ohio property tax exemption are
areas, we conclude that Ohio’s investment tax credit cannot       minor collateral requirements and are directly linked to the
be upheld under the Commerce Clause of the United States          use of the exempted personal property. The authorizing
Constitution.                                                     statute requires only an investment in new or existing
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                                                   Inc., et al.                       Inc., et al.

property within an enterprise zone and maintenance of                           conditional character of the Ohio property tax exemption does
employees. See Ohio Rev. Code Ann. § 5709.62(C)(1). The                         not resemble characteristics of property tax exemptions found
statute does not impose specific monetary requirements,                         unconstitutional by previous courts.
require the creation of new jobs, or encourage a beneficiary to
engage in an additional form of commerce independent of the                        Finally, the plaintiffs’ argument regarding the effect of the
newly acquired property. 1 As a consequence, the conditions                     exemption overlooks fundamental differences between tax
placed on eligibility for the exemption do not independently                    credits and exemptions. Unlike an investment tax credit that
burden interstate commerce.                                                     reduces pre-existing income tax liability, the personal
                                                                                property exemption does not reduce any existing property tax
  The cases on which the plaintiffs rely are inapplicable here,                 liability. The exemption merely allows a taxpayer to avoid
because they fail to address the question of whether                            tax liability for new personal property put into first use in
conditions attached to the receipt of an exemption violate the                  conjunction with a qualified new investment. Thus, a
anti-discrimination principle where the conditions themselves                   taxpayer’s failure to locate new investments within Ohio
do not impose independent burdens upon commerce. In                             simply means that the taxpayer is not subject to the state’s
Camps Newfound/Owatonna,Inc. v. Town of Harrison, 520                           property tax at all, and any discriminatory treatment between
U.S. 564 (1997), the Supreme Court reviewed a property tax                      a company that invests in Ohio and one that invests out-of-
exemption for charitable organizations that excluded                            state cannot be attributed the Ohio tax regime or its failure to
organizations operated principally for the benefits of                          reduce current property taxes. Additionally, the personal
nonresidents and found the exemption unconstitutionally                         property tax exemption is internally consistent because, if
discriminatory because the effect of the statute was to                         universally applied, the new property would escape tax
“distinguish[] between entities that serve a principally                        liability irrespective of location. Every new investment, no
interstate clientele and those that primarily serve an intrastate               matter where undertaken, would be exempt from a tax. Thus,
market, singling out [entities] that serve mostly in-staters for                businesses that desire to expand are neither discriminated
beneficial tax treatment, and penalizing those camps that do                    against nor pressured into investing in Ohio. Accordingly, we
a principally interstate business.” Id. at 576. Similarly, the                  hold that the Ohio personal property tax exemption does not
Fifth Circuit in Pelican Chapter, Associated Builders &                         violate the dormant Commerce Clause.
Contractors, Inc. v. Edwards, 128 F.3d 910 (5th Cir. 1997),
invalidated a tax exemption because it required beneficiaries                   B. State Equal Protection Claim
to give a preference to in-state manufacturers, suppliers, and
laborers. The Ohio provision at issue contains no restriction                     The plaintiffs also challenged the investment tax credit and
on the individuals employed or served. Therefore, the                           property tax exemption under the Equal Protection Clause of
                                                                                the Ohio Constitution, contending that the authorizing statutes
                                                                                “reflect a bias in favor of entrenched local interests that
                                                                                results in a discriminatory allocation of tax burdens and
    1
      Plaintiffs’ assertion that the exemption, once received, coerces          benefits.” The district court found no equal protection
business into continual re-investment in Ohio in order to preserve the tax      violation based on a determination that both provisions were
exemption is not persuasive. The exemption is project-specific and,             rationally related to a legitimate state interest in revitalizing
therefore, a business do es not lose its existing ex emp tion by d eciding to
make its next investment elsewhere.
                                                                                economically troubled areas.
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                                              Inc., et al.                 Inc., et al.

   The Equal Protection Clauses of the Ohio and United States        facilitating economic development, creating or preserving
Constitutions impose identical limitations on government             jobs, and improving the economic welfare of citizens);
classification. See Am. Ass’n of Univ. Professors v. Cent.           Nordlinger v. Hahn, 505 U.S. 1, 12 (1992) (“[T]he State has
State Univ., 717 N.E.2d 286, 291 (Ohio 1999) (rejecting an           a legitimate interest in local neighborhood preservation,
argument that the state equal protection clause imposes              continuity, and stability.”) (citing Village of Euclid v. Ambler
stricter analysis than the federal equal protection clause).         Realty Co., 272 U.S. 365 (1926)). The benefits conferred by
Heightened review is triggered only if the classification            the investment tax credit and property tax exemption are
“jeopardizes exercise of a fundamental right or categorizes on       rationally related to this interest, given that their objective is
the basis of an inherently suspect characteristic.” MCI              to encourage businesses to relocate or expand existing
Telecommunications Corp. v. Limbach, 625 N.E.2d 597, 600             facilities in central cities or areas that have high
(Ohio 1994). Because the tax credit and the exemption                unemployment rates, significant low-income populations, or
provision classify on the basis of locality, a classification that   deteriorating buildings.
is not inherently suspect, the tax incentives need only satisfy
rational basis review.                                                  The plaintiffs argue nonetheless that granting tax incentives
                                                                     to a new domestic business but not nonresident businesses is
   Under rational basis review, a classification “must be            not a legitimate purpose under Ohio’s Equal Protection
upheld against equal protection challenge if there is any            Clause. However, the cases cited in support of this argument
reasonably conceivable state of facts that could provide a           lend little or no weight to the plaintiffs’ position. In
rational basis for the classification.” Cent. State Univ., 717       Metropolitan Life Insurance Co. v. Ward, 470 U.S. 869, 880
N.E.2d at 290 (quoting FCC v. Beach Communications, Inc.,            (1985), for example, the Court invalidated an Alabama statute
508 U.S. 307, 313 (1993)). A rational relationship exists so         that imposed a higher tax rate on insurance companies that
long as “the relationship of the classification to its goal is not   were incorporated or maintained their principal place of
so attenuated as to render the distinction arbitrary or              business outside of Alabama, on the ground that the
irrational.” Pica Corp., Inc. v. Tracy, 646 N.E.2d 206, 209          difference in treatment failed to advance a legitimate state
(Ohio Ct. App. 1994). The state, moreover, has no duty to            interest. In so ruling, the Court held “that promotion of
produce legislative facts to sustain the rationality of a            domestic business within a State, by discriminating against
statutory classification. Cent. State Univ., 717 N.E.2d at 290.      foreign corporations that wish to compete by doing business
A statute is presumed constitutional, and the “burden is on the      there, is not a legitimate state purpose.” Id. Thus,
one attacking the legislative arrangement to negative every          Metropolitan Life holds that a state may not impose a
conceivable basis which might support it.” Id. (quoting Heller       discriminatory tax in order to promote domestic industry
v. Doe, 509 U.S. 312, 320 (1993)(citation omitted)).                 solely based on nonresident status. The tax benefits under the
                                                                     Ohio statutes, however, are equally available to domestic and
   The courts have recognized a state’s legitimate interest in       foreign corporations and classify corporations on the basis of
revitalizing economically troubled areas in order to eliminate       new investment in economically depressed areas.
problems frequently associated with urban blight. See, e.g.,
Desenco, Inc. v. Akron, 706 N.E.2d 323, 332 (Ohio 1999)                Likewise inapplicable are the cited opinions in Allegheny
(statutes that created economic development districts were           Pittsburgh Coal Co. v. County Commission of Webster
rationally related to the state’s legitimate interest in             County, 488 U.S. 336 (1989), and Hooper v. Bernalillo
No. 01-3960             Cuno, et al. v. DaimlerChrysler       17    18   Cuno, et al. v. DaimlerChrysler       No. 01-3960
                                              Inc., et al.               Inc., et al.

County Assessor, 472 U.S. 612 (1985). In both cases, the            § 5733.33, and we enjoin its enforcement. We AFFIRM the
Supreme Court struck down a county property tax assessment          remaining portions of the district court’s judgment.
scheme that could not reasonably support the state’s asserted
legislative purpose. In Allegheny, the county tax assessor
valued property based on the last sale price regardless of
when it was last sold, providing only a modest increase in
assessed value for properties that had not been recently
transferred. See id. at 343. This practice resulted in gross
disparities in the assessed value of comparable properties. The
Court acknowledged that a “[s]tate may divide different kinds
of property into classes and assign to each class a different tax
burden so long as those divisions and burdens are
reasonable,” but it found no rational basis for the county’s tax
scheme whose asserted purpose was to “assess[ ] properties
at true current value.” Id. at 343-44. Similarly, the Court
held in Hooper that a tax exemption classifying military
veterans based solely on their period of residency within the
state could not be rationalized by the state’s interest in
encouraging veterans to relocate to the state or in repaying
veterans for their military service. 472 U.S. at 620-22.
  By contrast, the classification in this case is clearly
supported by facts that give rise to a legitimate state interest.
In the equal protection context, a tax statute withstands
constitutional scrutiny as long as the burden it imposes is
found to be rationally related to that purpose. The purpose of
the Ohio statutes – to encourage industrial development and
economic stimulation of the state’s economically troubled
areas – clearly has a reasonable nexus to the tax provisions.
Hence, we conclude that the plaintiffs have failed to
demonstrate that the challenged tax incentives violate the
Equal Protection Clause of the Ohio Constitution.
                     III. CONCLUSION
  For the reasons set out above, we REVERSE that portion
of the district court’s judgment upholding as constitutional
the investment tax credit provision of Ohio Rev. Code Ann.
