An Exploration of State Income Tax Nexus: Does Economic Nexus Really Benefit States?

Abstract

While considerable attention in the state taxation literature has been devoted to understanding how much of a corporation's income is subject to tax in a state, much less has been placed on understanding the more critical question of whether a corporation is subject to tax in a given state in the first place (Wildasin 2010). This study investigates the antecedents of state income tax nexus and the influence of economic nexus adoption on state corporate tax revenue collections with a two-stage least squares model using an instrumental variable approach and panel data from 2000–2009. The results of this model indicate that adoptions of economic nexus standards are more common in states with a weaker domiciled business group presence, consistent with interest group theory; adoptions are also more common among states with no required combined reporting, no NOL carryback provisions, the imposition of an alternative minimum tax (AMT), and a higher gross state product. Interestingly, after the first year of adoption, states that adopt economic nexus standards have no statistically significant difference in corporate tax revenue collections compared to those that follow a physical presence standard. In additional analyses, we determine that the interactive influences between diffusion and political factors and between diffusion and interest group factors also affect states' economic nexus adoptions. These results contribute to the taxation literature by suggesting that states' economic nexus standard adoptions are carried out for interest group, political, and regional diffusion reasons, and are not associated with any long-term discernible effects on state corporate taxation revenues. Data Availability: The data used in this study are available from public sources identified in the text and Table 2.

State Tax Haven Legislation and Corporate Income Tax Revenues

“…23. Following Gupta et al (2009) and Davis and Hageman (2014), we calculate economic significance based on the sample mean LN_SCIT and the coefficient estimates on HAVEN using the formula: (exp(LN_SCIT þ b) À exp(LN_SCIT))/ exp(LN_SCIT). 24.…”

“…Moreover, Gupta et al (2009) also show that states that employ a sales throwback rule experience significantly higher corporate tax revenues compared to states without such a rule. In other research, Davis and Hageman (2014) fail to find evidence that the adoption of economic nexus standards by states significantly affects corporate tax revenues after the first year postadoption. Finally, Gupta and Lynch (2016) document that increases in state tax enforcement are associated with subsequent increases in state corporate tax revenues.…”

“…Our study contributes to two streams of tax literature. First, we extend the academic literature examining the effect of particular state income tax system characteristics on state corporate income tax revenue collections (e.g., Fox and Luna 2005;Gupta et al 2009;Davis and Hageman 2014;Gupta, Mills, and Towery 2014;Gupta and Lynch 2016). Since states are autonomous, each state has the ability to design a tax system that best fits the particular needs of the state.…”

Association of State-Level Tax Policy and Infant Mortality in the United States, 1996-2019

“…We signed an NCHS data use agreement granting access to the full, period-linked database without suppression of low counts . We obtained tax revenue data from the US Census Bureau Annual Survey of State and Local Government Finances and tax progressivity data from the Institute on Taxation and Economic Policy (ITEP) . The US Census Bureau was also our source of state population counts and all covariates included in our analyses .…”

E-Tailer Sales Tax Nexus and State Tax Policies

“…SeeDavis and Hageman (2014) for a discussion of income tax nexus. 8 Quill Corp v. North Dakota (504 US 298 (1992)), https://scholar.google.com/scholar_case?case=34341044 72675031870&q=Quill+Corp+v.+North+Dakota+(504+US+298+(1992)).&hl=en&as_sdt=6,44&as_vis=1.…”