Research Article

What Factors Entice States to Manipulate Corporate Income Tax Apportionment Formulas?

Published: 2023-9

Journal: Public Finance Review

DOI: 10.1177/10911421231167137

Abstract

Numerous states have altered the sales factor weight in their corporate income tax (CIT) apportionment formulas. We are among the first to examine which political and economic factors are important in determining whether and when states manipulate sales factor weights. We apply survival model techniques to a panel of state-level data for the years 1985−2012. Our most striking result is that a higher CIT rate is associated with faster movement to a higher sales factor weight. Perhaps indicating that, for economic development, states use sales factor manipulation in lieu of reducing CIT rates broadly, or alternatively, that states raise sales factor weights to compensate for higher statutory CIT rates. Results also indicate that stronger growth in the CIT base and in non-corporate tax revenues hasten sales factor weight increases. Democratic control of the state government and gubernatorial election years are also important in the timing of sales factor manipulation.

Faculty Members

  • John Deskins - Department of Economics, West Virginia University, Morgantown, WV, USA
  • Brian Hill - Department of Economics and Finance, Salisbury University, Salisbury, Maryland, USA

Themes

  • Dynamics of state taxation and revenue growth
  • Economic factors influencing corporate income tax apportionment
  • Impact of CIT rates on state tax policy adjustments
  • Role of state government control in tax policy decisions
  • Sales factor manipulation as a strategy for economic development
  • Political factors in state tax policy

Categories

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