Arizona Revoking Tax Benefits To Nike Likely Unconstitutional

The attempt by Arizona's Governor to revoke tax benefits granted to Nike in the wake of the "Betsy Ross Flag" controversy is most likely unconstitutional.

As James Joyner noted earlier this week, Nike pulled a new sneaker with a design of the so-called “Betsy Ross Flag” (which Betsy Ross probably didn’t design) after objections from former San Francisco 49er Colin Kaepernick, who has apparently become some kind of corporate adviser to the company ever since Nike began building an ad campaign around him last year. In response to that decision the Republican Governor of Arizona announced that he was considering withdrawing tax benefits that had been granted to move certain aspects of its business to the state:

Arizona Gov. Doug Ducey on Tuesday slammed Nike for canceling the release of a shoe featuring an early design of the American flag, saying it had “bowed to the current onslaught of political correctness and historical revisionism.”

Calling Nike’s decision a “shameful retreat” on Twitter, the Republican leader vowed to withdraw financial incentives recently promised to the company in exchange for opening a manufacturing plant in Goodyear with some 500 full-time jobs.

Nike pulled the shoe, set to go on sale this week, after former NFL quarterback Colin Kaepernick told the company he and others found the version of the flag depicted on the shoe offensive, according to a Monday report from The Wall Street Journal. Nike said it did not want to “unintentionally offend and detract from the nation’s patriotic holiday.”

The design — often called the “Betsy Ross” flag, though it’s not clear the 18th century upholsterer actually made it — has been appropriated by extremist groups such as the Ku Klux Klan and the “militia movement” in recent years.

“Words cannot express my disappointment at this terrible decision,” Ducey wrote in a string of tweets strategically posted 5 a.m. Eastern, or 2 a.m. Arizona time. He said he was “embarrassed” for Nike.

“This country, our system of government and free enterprise have allowed (the company) to prosper and flourish,” he wrote. “Instead of celebrating American history the week of our nation’s independence, Nike has apparently decided that Betsy Ross is unworthy.”

Ducey said he’d ordered the Arizona Commerce Authority to withdraw all financial incentives for Nike “under their discretion,” which the Authority later said referred to an “up to $1 million grant” from its Arizona Competes Fund.

The group has no control over the incentives offered to Nike through the development deal approved by the Goodyear City Council on Monday, however. That agreement waives nearly $1 million in permit and plan review fees the city would typically charge and mentions reimbursing $1 million to the company for job creation.

Nike has made its decision, and now we’re making ours,” Ducey wrote. “Arizona’s economy is doing just fine without Nike. We don’t need to suck up to companies that consciously denigrate our nation’s history.”

Eugene Volokh noted at The Volokh Conspiracy, though, that this action by Governor Ducey could violate the First Amendment:

[T]he First Amendment generally forbids the government from retaliating against government contractors based on the contractors’ protected First Amendment activity (which would include either deciding to release a shoe with a particular flag design, or deciding not to release it); the Supreme Court so held in Board of Comm’rs v. Umbehr(1996). And while that case involved traditional payment-for-service contracting, the logic of the case would apply to financial incentives such as those involved in the Nike case. (Indeed, Umbehr relied on, among other cases, Speiser v. Randall (1959), which held this as to tax exemptions.)

(…)

The Court in Umbehr focused on speech-based decisions to cancel a terminable-at-will contract, or not to renew such a contract. But it sounds like the Nike matter likewise involves a decision to cancel an already arranged plan; and just as the First Amendment bar on the government firing employees based on their First Amendment activity also applies to refusals to hire (Rutan v. Republican Party of Illinois (1990)), so the First Amendment bar on terminating contracts based on First Amendment activity applies to refusals to contract.

None of this, of course, speaks to the wisdom of tax incentives such as the ones at issue as a policy matter. As a general rule, they are unwise moves that do not end up bringing the economic benefit promised. Whether or not they are wise, though, is not the issue here. The issue here is that Governor Ducey, apparently on his own, decided to revoke subsidies and incentives that had already been granted due to a decision that Nike made that is clearly based on its own business discretion and its own First Amendment rights. That, the case law seems to make clear, is impermissible.

What’s unclear is whether Nike would challenge Governor Ducey’s decision in court. As it stands, they seem to remain committed of opening the facility in Arizona notwithstanding his decision so perhaps they’ll just let it stand. If they did challenge it, though, there is a good chance they’d win.

FILED UNDER: Economics and Business, First Amendment, Law and the Courts, Popular Culture, Sports, U.S. Constitution
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. michael reynolds says:

    This ridiculous controversy is a Vietcong flag moment. I knew, the first time I started seeing the anti Vietnam war demonstrators start to break out Cong and NVA flags and posters of Ho Chi Minh that the anti-war movement would fail. Then there was Jane Fonda grinning into the eyepiece of an anti-aircraft gun that shot down American planes.

    When a movement – any movement – becomes openly anti-American, it fails. This controversy is a stupid overreach by the far Left. These fcking idiots will screw this election if they don’t pull their heads out of their asses. This is not how you win, this is how you commit political suicide. It is past time for the grown-ups to show some spine and push back against this kind of attention-grabbing silliness.

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  2. gVOR08 says:

    So the guv is giving a board discretion to hold back, or not, some small part of Nike’s benefits. And he’s grandstanding that he’s killing Nike’s subsidies. Meanwhile, Nike is going ahead with their plans as if nothing has happened, because nothing has. Proving that the Republican voters of Arizona are just simple farmers. These are people of the land. The common clay of the new West. You know… morons.

    In all honesty @michael reynolds: I don’t think it’s the Ds that are being silly in this shoe kerfuffle. It’s another example of Rs seizing on anything they can find to drive social division.

    Also, too, I know that boat sailed, and abusing the flag is now a show of “patriotism”, but putting flags on shoes is a violation of the flag code.

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  3. michael reynolds says:

    @gVOR08:

    It’s another example of Rs seizing on anything they can find to drive social division.

    It’d be nice if we made it a bit less easy for them.

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  4. Teve says:
  5. Teve says:

    Nike didn’t pull the shoes because they’re a buncha libtart Dems, they give more money to the GOP. They pulled the shoes because their entire existence is built on the capricious fiction of marketing and if they ever get associated in the public consciousness with the word ‘racist’ they might as well throw all their stock certificates into a Troy-Bilt chipper/shredder.

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  6. Teve says:

    additional notes:

    *for Air Max 1s, they’re fairly ugly.

    *Converse is better positioned to do a special edition in this kind of colorway.

  7. Gustopher says:

    Why would you want to do business in a red state when they will arbitrarily use the power of the state to try to control your business decisions?

  8. Kathy says:

    Isn’t the free-market, properly Republican solution to this simply setting up a shoe company that will make shoes with Betsy Ross flags on them?

  9. SKI says:

    I can’t figure out why these stories keep excluding the fact that the neo-nazis and white supremacists have been using that version of the flag for years as a symbol of their hatred of the “new” multicultural more-equal USA and a desire to return to our more-bigoted roots. Given that reality, Nike decided not to make a shoe that had that flag on it.

    To michael‘s point, the issue isn’t the decision, it is the lack of PR smarts/explanation of it. Why do we keep committing unforced errors.

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  10. James Joyner says:

    @Teve: In fairness, “I’m going to throw away a product for which I’ve already paid” is the stupidest form of boycott.

  11. Gustopher says:

    @michael reynolds: Nike’s flag shoes are an issue that will only play to the far fringes. It makes everyone involved seem petty and dumb — Kaepernick, Nike, a few flighty activists, and Republican elected officials. You will note that only one of those groups really has power, and they are already overreaching.

    Also, it’s a slow news day outrage, not up to the standards of the usual outrage du jour. if you’re deeply worried about the far left freak show, be reassured that *this* is the current far left freak show, rather than something bigger.

  12. gVOR08 says:

    @SKI:

    the issue isn’t the decision, it is the lack of PR smarts/explanation of it. Why do we keep committing unforced errors.

    To be fair to Dem pols, I think largely because the Rs have FOX and our guys have to depend on the supposedly liberal MSM.

  13. Andre Kenji de Sousa says:

    @Gustopher: Exactly. Businesses are incredibly open to Tennessee because they are more moderate state(Free Community College) and don’t elect these clowns.

  14. Just nutha ignint cracker says:

    @Gustopher: Good point!

  15. @michael reynolds:

    I knew, the first time I started seeing the anti Vietnam war demonstrators start to break out Cong and NVA flags and posters of Ho Chi Minh that the anti-war movement would fail. Then there was Jane Fonda grinning into the eyepiece of an anti-aircraft gun that shot down American planes

    The anti-Vietnam war movement failed?

  16. Kit says:

    @Miguel Madeira:

    The anti-Vietnam war movement failed?

    In at least one sense, yes. Once the military started gearing up for action again in the 80’s / 90’s, everyone seemed to feel a bit over eager to prove their support. And prove it. And prove it again. A couple of decades later, we have a degree of fawning admiration that is at once both unseemly and dangerous for a health democracy.

  17. Tyrell says:

    Irrelevant to many and much ado about zero. I never got a good fit with Nike. Sketchers, NB, and Avia are cheaper and more comfortable. In this area it is usually sandals most of the year.
    Soon the attention will be on college football and this sort of non news will disappear.

  18. michael reynolds says:

    @Miguel Madeira:
    The anti-war movement began in 1964. The war ended ten years later. I suppose if you posit that the war might have lasted another decade then sure, the movement succeeded. But until Afghanistan Vietnam was our longest war, so, by rational standards the movement failed. It failed miserably. It helped elect Nixon because Humphrey wasn’t pure enough, and as a result the war expanded into Cambodia and led to the Killing Fields. Millions died in part because of the failure of a tone-deaf, narcissistic anti-war movement. Millions.

  19. wr says:

    @michael reynolds: “Millions died in part because of the failure of a tone-deaf, narcissistic anti-war movement. Millions.”

    Seems pretty ungenerous to lay all these deaths at the feet at a bunch of teenagers who were unable to come up with a method sophisticated enough to change the actions of the nation’s political-military-business elites.

    What do you think they should have done? I mean, in the context of the time? Done what Kerry did — sign up, fight in the war, and then come back and testify to Congress? Write sternly worded letters to their congressmen?

    It occurs to me that the one thing that might have changed the course of the war is if every middle-class and above kid refused a college deferment and allowed himself to be sent off to be killed. Maybe that would have shamed some white parents into realizing that the war was wrong.

    But I don’t think I would have been willing to do that. How about you?

  20. michael reynolds says:

    @wr:
    I’m not laying it all at the feet of the anti-war movement, but their inability to be rational certainly didn’t help.

    Chicago was the time and place where the movement self-destructed, with the Yippies! seizing the narrative. Had they been a bit savvier, a bit more reasonable, less narcissistic, we’d have had a president Humphrey and HHH was never a big war supporter, but was a legit Civil Rights hero. There’s some evidence that Humphrey was prepared to bail if elected. Would he have? There’s no way to know, but a Humphrey presidency would have been infinitely better than a Nixon presidency. It would have meant the defeat of the southern strategy among other useful things.

    Chicago was a show, made for TV, the best possible advertisement for Nixon, and terribly damaging to HHH, all courtesy of Hoffman and Rubin. It was a terrible error in judgment. They cut the legs out from under anti-war Democrats in Congress, demonized the military (which was already convinced Vietnam was a lost cause), and glorified stone-cold murderers like Che and Fidel in the process. They made the movement about themselves, they lost sight of their purpose, but I’m sure they had fun.