DaimlerChrysler AG drew support from the U.S. Supreme Court for its bid to let states continue giving millions of dollars in tax breaks to encourage local investment by companies.

DaimlerChrysler and Ohio asked the justices during yesterday’s arguments in Washington to overturn a lower court ruling that the state’s investment tax credit illegally discriminated against companies that pay Ohio taxes and invest in other states.The tax credit was a central part of $280 million in financial breaks Chrysler Corporation got in 1996 to build a new Jeep plant in Toledo.

States say the lower court ruling could eliminate a valuable tool for spurring development and keeping jobs in America. Forty-six of the 50 states offer some form of investment tax credit, with six – California, Illinois, Massachusetts, New York, Michigan, and Texas – granting an average of $844 million a year.

“Such proposals are sometimes politically controversial,” Justice Antonin Scalia told the lawyer for a group of taxpayers and businesses challenging the tax credit. “Let the people fight it out. Why should it be an issue that a court should decide?”

During the one-hour argument in Washington, the justices also debated whether the taxpayers had the legal right to sue at all. A ruling that they lacked standing to sue would preserve DaimlerChrysler’s tax credit without deciding whether such credits amount to discrimination.

The Ohio credit was among the factors that persuaded Chrysler,now a unit of DaimlerChrysler of Stuttgart, Germany, to build its new plant in Toledo.

At the time, Ohio let companies investing in new machinery take a 7.5% credit against their corporate franchise tax, rising to 13.5% if, as in Daimler- Chrysler’s case, the equipment was used in an “economically depressed” area. The state has since begun phasing out the franchise tax entirely.

DaimlerChrysler’s lawyer, former U.S. Solicitor General Theodore Olson, said the Ohio tax credit doesn’t discriminate because it doesn’t create a burden on out-of-state activity.

“This court has said that competition between states for commerce lies at the heart of a free-trade society,” Mr. Olson said.Barring such tax credits would “nationalize” the state tax system, he said.

The Cincinnati-based 6th U.S. Cir cuit Court of Appeals struck down the credit in 2004 while upholding a separate exemption for DaimlerChrysler from the Toledo property tax. The appeals court invoked a doctrine that says Congress’s authority to regulate interstate commerce means that states can’t discriminate against out-of-state business activity.

Attorney Peter Enrich, representing the taxpayers and companies challenging the tax credit, made little headway with his argument that the credit discriminates between companies paying taxes in Ohio that invest in the state and those that invest instead in other states.

The tax credit is “not discrimination. That is simply the effect of a free choice,” Justice David Souter said. “The opportunity to make that investment is open to every business.”

Justice John Paul Stevens questioned whether Ohio instead could have given DaimlerChrysler a direct subsidy, as the lower court said it could. Mr. Enrich said a subsidy wouldn’t cause the same harm to interstate commerce as a tax credit.

Chief Justice John Roberts Jr. likened the tax credit to a homestead exemption from property taxes given to people whose home is their primary residence. It has the same purpose, “they want people to move in,” Judge Roberts said.