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State Corporation Income Taxation; An Economic Perspective on Nexus

  • David Wildasin

    ()

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

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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File URL: http://www.ifigr.org/publication/ifir_working_papers/IFIR-WP-2009-08.pdf
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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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  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. 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.
  3. Pogue, Thomas F., 2007. "The Gross Receipts Tax: A New Approach to Business Taxation?," National Tax Journal, National Tax Association, vol. 60(4), pages 799-819, December.
  4. Austan Goolsbee & Edward L Maydew, 1998. "Coveting Thy Neighbor's Manuafacturing: The Dilemma of State Income Apportionment," NBER Working Papers 6614, National Bureau of Economic Research, Inc.
  5. 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, vol. 63(4), pages 1145-1184, December.
  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, vol. 5(1), pages 41-59, February.
  7. 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.
  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. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  10. David E. Wildasin, 2005. "Fiscal Competition," Working Papers 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  11. Weingast, Barry R. & Wittman, Donald, 2008. "The Oxford Handbook of Political Economy," OUP Catalogue, Oxford University Press, number 9780199548477, March.
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