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State Corporation Income Taxation - An Economic Perspective on Nexus

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  • David E. 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.

Suggested Citation

  • David E. Wildasin, 2010. "State Corporation Income Taxation - An Economic Perspective on Nexus," CESifo Working Paper Series 3218, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3218
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp3218.pdf
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    References listed on IDEAS

    as
    1. Bradford, David F., 1978. "Factor prices may be constant but factor returns are not," Economics Letters, Elsevier, vol. 1(3), pages 199-203.
    2. Pogue, Thomas F., 2007. "The Gross Receipts Tax: A New Approach to Business Taxation?," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(4), pages 799-819, December.
    3. Altshuler, Rosanne & Grubert, Harry, 2010. "Formula Apportionment: Is It Better Than the Current System and Are There Better Alternatives?," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(4), pages 1145-1184, December.
    4. Goolsbee, Austan & Maydew, Edward L., 2000. "Coveting thy neighbor's manufacturing: the dilemma of state income apportionment," Journal of Public Economics, Elsevier, vol. 75(1), pages 125-143, January.
    5. David E. Wildasin, 2005. "Fiscal Competition," Working Papers 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
    6. 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;International Institute of Public Finance, vol. 5(1), pages 41-59, February.
    7. Weingast, Barry R. & Wittman, Donald, 2008. "The Oxford Handbook of Political Economy," OUP Catalogue, Oxford University Press, number 9780199548477.
    8. 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.
    9. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 269-304, June.
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    11. 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.
    12. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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