Kentucky Jobs Threatened by Ruling
Sixth Circuit decision would cut economic incentives and stifle growth

An estimated 80 percent of the new jobs created in Kentucky are the products of tax credits and other business incentives offered by the Commonwealth of Kentucky. In fact, the Economic Development Cabinet estimates that, since 1997, the total impact from state tax credit and incentive programs includes 213,262 jobs and $5.1 billion in earnings. These tax credits and other business incentives are essential for Kentucky to remain competitive in today’s global economy and to prevent jobs from going overseas or to other states.

A recent decision by the United States Court of Appeals for the Sixth Circuit – which includes Kentucky, Ohio, Michigan, and Tennessee – jeopardizes the ability to offer these incentives. A three-judge panel recently ruled that Ohio violated the United States Constitution by offering tax credits to encourage business development. The court concluded these incentives put an “undue burden” on interstate commerce. The viability of these credits is front and center in the courtroom battle being waged in Ohio. Kentucky, Michigan, and Tennessee have all weighed in to urge the full 12-member court to re-hear the case and reverse the decision.

The end result of this ruling has dramatic consequences for you, your family, your neighbors and your community. As stated in the briefs filed by Frost Brown Todd LLC and the attorneys general of Kentucky, Michigan, and Tennessee, this ruling undoubtedly will have a “chilling effect” on all three states when businesses are looking nationally and internationally to locate or expand their businesses. Although we expect this decision will ultimately be resolved by the United States Supreme Court, it could be months or even years before the court would decide the case. In that interim period, national and international companies looking at Kentucky will find a question mark as to whether or not the incentives being offered to them by the commonwealth can be fulfilled.

Ordinarily, attempts to modify a tax system are marked by partisan politics and disagreement. The most amazing part of the Ohio case, and the efforts to obtain its reversal, is the wide range of oftentimes opposing interests that are now in complete agreement. In this battle, Democrats agree with Republicans, labor unions agree with auto manufacturers, and Kentuckians agree with Ohioans that the Sixth Circuit’s decision must be reconsidered. In fact, the attorneys general from Kentucky, Michigan and Tennessee all formally supported Ohio’s efforts to protect its tax incentives. This is true even though these states often compete against one another for the same businesses. Additionally, the chambers of commerce in Lexington, Louisville, Cincinnati, Columbus, and Nashville filed a joint brief asking the Sixth Circuit to rehear the case. Bob Quick, president of Commerce Lexington, helped join these various chambers to support reversing the opinion. The Kentucky chambers realize that economic development in our cities is dependent upon these incentives. They are essential in order for us to compete to keep jobs in the United States and Kentucky. Representatives of the chambers will confirm that we are competing against Mexico, Canada, Europe, and countries in the Far East for these jobs.

Representatives of the Kentucky Economic Development Cabinet believe that a clear distinction is present between Kentucky’s incentive programs and Ohio’s tax credits. Kentucky’s credits apply against future taxable earnings related to new or expansion projects, while Ohio provides a tax credit on existing tax liability even without generating project revenues.

Kentucky competes in the national and international arena for job creation and capital investment and has fared extremely well. Over the years, the Economic Development Cabinet and the state have garnered numerous awards nationally for job creation and capital investment. We have worked too long in Kentucky to foster an environment favorable to job creation and capital investment to sit by and see those gains eroded. The Ohio decision threatens to take away a powerful and effective tool from Kentucky. If the Ohio decision is not reversed, it will cost Kentucky and America jobs. We cannot let that happen.

C. Edward Glasscock and William L. Skees, Jr. are business lawyers with Frost Brown Todd LLC. Skees also writes for business and law publications around Kentucky.
editorial@lanereport.com

Back to Legal Index

Back to November Issue

Copyright 1996-2004, by Kentucky Business Online.  All rights reserved.

Editorial content is copyright 2004, Lane Communications Group
All editorial material is fully protected and must not be reproduced in any manner without prior permission.

The Lane Report is a trademark of Lane Communications Group.  All other trademarks are the property of their respective owners.