Attorneys with the North Carolina Institute for Constitutional Law (NCICL) are expected to file legal papers Thursday to challenge a record-setting package of tax breaks given to Dell to ensure that the No. 1 computer maker built a 527,000-square-foot facility in the middle of the state.
The state of North Carolina, the city of Winston-Salem, Forsyth County and three nonprofit organizations will also be named in the lawsuit, former North Carolina Supreme Court justice Robert Orr, who heads the NCICL, said in an interview Wednesday. The complaint is a declaratory judgment and asks the State Supreme Court in Raleigh to review whether 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 North Carolina General Assembly authorized a record $242 million in tax incentives for Dell back in November 2004. That was followed by an additional $37.2 million in subsidies from Winston-Salem and Forsyth County officials.
Though local and state governments often work together to entice midsize and large corporations to set up shop in their communities, Dell's deal is unique in that it's the largest in state history. Pharmaceutical giant Merck received a substantial tax incentive package in early 2004 when it moved out of New Jersey, Orr said. Semiconductor manufacturer Cree brokered a deal with officials in the state's celebrated Research Triangle Park, when the company hinted that it would like to move north to Virginia
Dell's deal came at about the same time the 6th U.S. Circuit Court of Appeals ruled that a tax credit given by the state of Ohio to DaimlerChrysler was in violation of the federal commerce rules.
Orr said he and his group are not against Dell moving in; they just question the methodology.
"The concern is that Dell comes in and says they don't want to pay taxes for the next 20 years in a state where other companies are doing their part," Orr said. "We want them to complete their project in North Carolina, but we want them to pay their fair share to the state."
Dell spokesman David Frink would not comment on how the incentives break down on a yearly basis but said the tax credits Dell is receiving are tied to the company's performance. Representatives with the N.C. Department of Commerce, the Winston-Salem city attorney's office, and the legal department with Forsyth County were not immediately available to comment.
"We think that North Carolina took a pragmatic approach and tied incentives to job creation, which is something that they have been focusing on," Frink said.
The Winston-Salem plant is Dell's largest U.S. manufacturing site and is scheduled to open in the fall and begin production in September. The North Carolina facility will produce Dell's OptiPlex and Dimension desktop computer products, Dell said. Dell is currently in the process of hiring its first training team of 130 people for the North Carolina facility. About 1,500 people from the community are expected to join Dell within five years.
Orr said he's worried that cases like Dell's and DaimlerChrysler's are creating a business war between the states where civic governments are forgoing millions in revenue that could have been earmarked for local programs.