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State Corporation Income Taxation; An Economic Perspective on Nexus

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  • David Wildasin

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

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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Bibliographic Info

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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  1. William H. Hoyt & J. William Harden, 2005. "MSA Location and the Impact of State Taxes on Employment and Population: A Comparison of Border and Interior MSA's," Working Papers 2005-01, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  2. Weingast, Barry R. & Wittman, Donald, 2008. "The Oxford Handbook of Political Economy," OUP Catalogue, Oxford University Press, number 9780199548477, September.
  3. 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.
  4. 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.
  5. Rosanne Altshuler & Harry Grubert, 2009. "Formula Apportionment: Is it better than the current system and are there better alternatives?," Working Papers 0901, Oxford University Centre for Business Taxation.
  6. David E. Wildasin, 2005. "Fiscal Competition," Working Papers 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  7. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  8. 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.
  9. Bradford, David F., 1978. "Factor prices may be constant but factor returns are not," Economics Letters, Elsevier, vol. 1(3), pages 199-203.
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