Publication Search Results

The past quarter century has seen a dramatic decline in the yield of corporate income taxes at both the federal and state levels. Major federal corporate tax legislation enacted in 2004 created a new tax break, known as the “Qualified Production Activities Income” (QPAI) deduction that has further accelerated the decline of the corporate tax. This policy brief evaluates the QPAI deduction and discusses possible state policy responses.

Every state that levies a corporate income tax must determine, for each company doing business within its borders, how much of the company’s profits it can tax. One factor that all such states use to make this determination is the percentage of the company’s nationwide sales that can be attributed to the state. Ideally, all of a company’s sales would be attributed to the states in which it operates, but, due to differences among states’ corporate income tax rules, this is not always the case. In some instances, a portion of a business’ sales are not attributed to any state, which means that a corresponding portion of its profits go untaxed, a phenomenon often referred to as “nowhere income.” This policy brief explains how this phenomenon arises and discusses how a throwback rule can be used to ensure that all corporate profits are subject to taxation.

Over the past several decades, state corporate income taxes have declined markedly. One of the factors contributing to this decline has been aggressive tax avoidance on the part of large, multi-state corporations costing states billions of dollars. The most effective approach to combating corporate tax avoidance is the use of combined reporting, a method of taxation currently employed in more than half of the states with a corporate income tax. Eight states have enacted legislation to institute combined reporting within the past five years. Commissions and lawmakers in several other states, such as North Carolina, Maryland, Rhode Island and Kentucky, have recently recommended its adoption. This policy brief explains how combined reporting works.

Sales taxes are among the most important–and most unfair–taxes levied by state governments. Sales taxes accounted for a third of state taxes in 2011, but sales taxes are regressive, falling far more heavily on low- and middle- income taxpayers than on the wealthy. In recent years, lawmakers thinking they might lessen the impact of these taxes have enacted “sales tax holidays” that provide temporary sales tax breaks for purchases of clothing, computers, and other items. This policy brief looks at sales tax holidays as a tax reduction device.

Retail trade has been transformed by the emergence of the Internet. As the popularity of “e-commerce” (that is, transactions conducted over the Internet) has grown, policymakers have engaged in a heated debate over how state sales taxes should be applied to these transactions. This debate is of critical importance for state lawmakers because sales taxes comprise close to a third of all state tax revenues.

Sales taxes are one of the most important revenue sources for state and local governments–and are also one of the most unfair taxes. In recent years, policymakers nationwide have struggled to find ways of making sales taxes more equitable while preserving this important source of funding for public services. This policy brief discusses the advantages and disadvantages of two approaches to progressive sales tax relief: broad-based exemptions and targeted sales tax credits.

General sales taxes are an important revenue source for state governments, accounting for close to half of state tax collections nationwide. But most state sales taxes have a damaging structural flaw: the tax typically applies to most sales of goods, such as books and computers, but exempts most services such as haircuts and car repairs. This omission is not the result of conscious policy choices, but a historical accident: when most state sales taxes were enacted in the 1930s, services were a relatively small part of consumer spending.

Sales and excise taxes, or consumption taxes, are an important revenue source, comprising close to half of all state tax revenues. These taxes are levied in each of the fifty states and are often considered “hidden” to consumers since they’re spread out over many purchases rather than paid in one lump sum. This policy brief takes a closer look at how these taxes are calculated.