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Dell subsidies suit asks for injunction, payback

North Carolina lawsuit says Dell got grossly unfair tax advantages to build factory, asks that incentives be halted and monies returned.

PC manufacturer Dell is involved in a lawsuit with national implications that challenges the generous tax incentives the company was promised by North Carolina lawmakers.

As expected, lawyers for the North Carolina Institute for Constitutional Law (NCICL) filed a 69-page complaint with the Wake County Superior Court in Raleigh, N.C., on Thursday morning. The suit was filed on behalf of seven small-business owners in the Forsythe County area who say Dell is getting grossly unfair tax advantages to build its 527,000-square-foot manufacturing facility in the city of Winston-Salem. When completed this summer, the plant will be Dell's third and largest plant in the United States.

The complaint claims Dell's package deal violates the U.S. Constitution's commerce clause, which says Congress (and by extension, the states) cannot make laws that favor commerce in one state over commerce in another. The suit asks for an injunction preventing Dell from receiving any further tax incentives and asks that the company be required to pay back the funds it has received so far. In addition to Dell, the suit names the state of North Carolina, the city of Winston-Salem, Forsyth County and three nonprofit organizations as defendants.

Burly Mitchell, a former North Carolina Supreme Court justice who is representing Dell in this matter, said the NCICL's argument is flawed since the incentives are tied to job creation in the area and span a 20-year time frame.

The issue has national implications for antisubsidy groups hoping to set a precedent. The current marquee case involves a DaimlerChrysler manufacturing plant in Ohio, which received investment tax credit. A U.S. federal appeals court ruled that the deal unconstitutionally discriminated against interstate commerce. Lawyers with DaimlerChrysler are asking for the U.S. Supreme Court to review the case.

The North Carolina General Assembly authorized a record $242 million in tax incentives for Dell back in November 2004 to entice the No. 1 computer maker to set up shop in the middle part of the state, an area called the Piedmont Triad. That was followed by an additional $37.2 million in subsidies from the city of Winston-Salem and Forsyth County.

The court will now await an official response from the defendants before considering any action on the lawsuit, Orr said. Meantime, Dell's Winston-Salem plant is hiring its first batch of employees and says it will be on schedule to make desktop PCs starting in September.