How Should a Subnational Corporate Income Tax on Multistate Businesses Be Structured?

William Fox, Matthew Murray () and LeAnn Luna

National Tax Journal, 2005, vol. 58, issue 1, 139-59

Abstract: This paper provides an economic evaluation of the state corporate income tax (CIT) in an open economy environment characterized by highly mobile capital. We find little economic justification for the state CIT, but recognize that it is not likely to be replaced in the foreseeable future. The current CIT structure provides the potential for significant tax–induced distortions and tax planning opportunities. To lessen distortions, we recommend a broad economic nexus standard, combined reporting, and an entity level tax on limited liability companies. To reduce–origin based taxation, states should increase the weight of the sales factor for formula apportionment, but not adopt a throwback rule.

Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:58:y:2005:i:1:p:139-59

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