State and Provincial Corporate Tax Planning: Income, Sales, Compensation and Assets Management

Abstract

This paper examines American state and Canadian provincial data to estimate the extent to which manufacturers minimize subnational tax payments by managing four key components of subnational tax returns: taxable income, sales, compensation, and assets. To our knowledge, this is the first study to estimate elasticities of these financial data to cross-subnational variation in corporate income taxes. The findings are consistent with subnational, tax-motivated income shifting and management of the sales apportionment factor, but not the compensation or assets factors. We estimate state (provincial) taxable income falls 5.6 (6.9) percent for every one percentage point increase in the jurisdiction's maximum statutory corporate income tax rate.

JEL Classification: H25, H71, H73