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Economic Effects of Apportionment Formula Changes

Author

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  • Kelly D. Edmiston

    (Federal Reserve Bank of Kansas City)

  • F. Javier Arze del Granado

    (World Bank)

Abstract

Empirical studies of the economic effects of changes in state corporate income tax apportionment policies generally have used highly aggregated state-level data. This study uses individual firm-level data, from 1992 to 2002 State of Georgia corporate income tax returns, to evaluate economic development and revenue aspects of increasing the sales factor weight (and uniformly lowering weights on payroll and property) in state corporate income tax apportionment formulae. The authors find elasticities indicative of a substantial impact on local sales (-6.5 percent), payroll (2.0 percent), and property (2.1 percent) following a move to double-weighted sales. For the average firm, increases in Georgia payroll and property were $37,110 and $190,829, respectively, while the decrease in Georgia sales was $634,367. Using 1994 figures (the year prior to double-weighting), this amounts to statewide payroll and property increases of $0.6 billion and $3.1 billion, respectively, and a gross receipts decrease of approximately $10.4 billion.

Suggested Citation

  • Kelly D. Edmiston & F. Javier Arze del Granado, 2006. "Economic Effects of Apportionment Formula Changes," Public Finance Review, , vol. 34(5), pages 483-504, September.
    • Handle: RePEc:sae:pubfin:v:34:y:2006:i:5:p:483-504
    DOI: 10.1177/1091142106289016
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    References listed on IDEAS

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    1. 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.
    2. Klassen, Kenneth J. & Shackelford, Douglas A., 1998. "State and provincial corporate tax planning: income shifting and sales apportionment factor management," Journal of Accounting and Economics, Elsevier, vol. 25(3), pages 385-406, June.
    3. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-1373, November.
    4. Cornia, Gary & Edmiston, Kelly D. & Sjoquist, David L. & Wallace, Sally, 2005. "The Disappearing State Corporate Income Tax," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(1), pages 115-138, March.
    5. Charles E. McLure, Jr., 1981. "The Elusive Incidence of the Corporate Income Tax: The State Case," NBER Working Papers 0616, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Martini, Jan-Thomas & Niemann, Rainer & Simons, Dirk, 2014. "Management incentives under formula apportionment: Tax-induced distortions of effort and compensation in a principal-agent setting," arqus Discussion Papers in Quantitative Tax Research 168, arqus - Arbeitskreis Quantitative Steuerlehre.
    2. MIYOSHI Yoshiyuki, 2017. "Does Sales Factor Apportionment Benefit the Welfare of State?," Discussion papers 17124, Research Institute of Economy, Trade and Industry (RIETI).
    3. Claudia Keser & Gerrit Kimpel & Andreas Oestreicher, 2014. "The CCCTB option – an experimental study," CIRANO Working Papers 2014s-24, CIRANO.
    4. Claudia Keser & Gerrit Kimpel & Andreas Oestreicher, 2016. "Would a CCCTB mitigate profit shifting?," CIRANO Working Papers 2016s-29, CIRANO.
    5. Keser, Claudia & Kimpel, Gerrit & Oestreicher, Andreas, 2014. "The CCCTB option: An experimental study," University of Göttingen Working Papers in Economics 199, University of Goettingen, Department of Economics.
    6. David Merriman, 2015. "A Replication of “Coveting Thy Neighbor’s Manufacturing," Public Finance Review, , vol. 43(2), pages 185-205, March.
    7. Hansjörg Blöchliger & José Maria Pinero Campos, 2011. "Tax Competition Between Sub-Central Governments," OECD Economics Department Working Papers 872, OECD Publishing.
    8. Stephen J. Lusch & James Stekelberg, 2020. "State Tax Haven Legislation and Corporate Income Tax Revenues," Public Finance Review, , vol. 48(3), pages 354-383, May.
    9. Keser, Claudia & Kimpel, Gerrit & Oestreicher, Andreas, 2014. "The CCCTB option an experimental study," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100490, Verein für Socialpolitik / German Economic Association.
    10. John Deskins & Brian Hill, 2023. "What Factors Entice States to Manipulate Corporate Income Tax Apportionment Formulas?," Public Finance Review, , vol. 51(5), pages 669-687, September.
    11. Jan Thomas Martini & Rainer Niemann & Dirk Simons, 2014. "Management Incentives under Formula Apportionment - Tax-Induced Distortions of Effort and Compensation in a Principal-Agent Setting -," CESifo Working Paper Series 4908, CESifo.
    12. Welsch, Anthony, 2023. "The effect of market-based sourcing on labor outcomes," Journal of Public Economics, Elsevier, vol. 225(C).

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    Keywords

    apportionment; state corporate income tax;

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