State Corporation Income Taxation; An Economic Perspective on Nexus

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State Corporation Income Taxation; An Economic Perspective on Nexus

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David Wildasin () (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky)

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David Wildasin

Abstract

Acting in the interest of their residents, within limits imposed by Federal statute and by the Constitution, states have incentives to impose taxes on the profits of corporations owned by nonresidents. This paper presents a model within which a state, using an apportionment formula that includes a sales factor, would choose to tax the income of out-of-state corporations that derive revenues from the sale or licensing of intangible assets to in-state customers, provided that such corporations have sufficient nexus to be taxable. Although such policies enable states to capture rents from nonresidents, they also introduce tax distortions by imposing implicit tariffs on sales by out-of-state firms.

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Paper provided by University of Kentucky, Institute for Federalism and Intergovernmental Relations in its series Working Papers with number 2009-08.

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Length: 21 pages
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:ifr:wpaper:2009-08

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Find related papers by JEL classification:
H7 - Public Economics - - State and Local Government; Intergovernmental Relations
G01 - Financial Economics - - General - - - Financial Crises

This paper has been announced in the following NEP Reports:

NEP-ACC-2009-04-05 (Accounting & Auditing)
NEP-ALL-2009-04-05 (All new papers)
NEP-PBE-2009-04-05 (Public Economics)

References listed on IDEAS
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David E. Wildasin, 2005. "Fiscal Competition," Working Papers 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
Douglas Shackelford & Joel Slemrod, 1998. "The Revenue Consequences of Using Formula Apportionment to Calculate U.S. and Foreign-Source Income: A Firm-Level Analysis," International Tax and Public Finance, Springer, vol. 5(1), pages 41-59, February. [Downloadable!] (restricted)
Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June. [Downloadable!] (restricted)
Wildasin, David E. & Wilson, John Douglas, 1998. "Risky local tax bases: risk-pooling vs. rent-capture," Journal of Public Economics, Elsevier, vol. 69(2), pages 229-247, June. [Downloadable!] (restricted)

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This page was last updated on 2009-11-17.

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