State and provincial corporate tax planning: income shifting and sales apportionment factor management

We empirically document a strategy through which corporations avoid state i ncome taxes. Examining aggregated American state and Canadian provincial da ta from 1983-1991, we find corporate income tax revenues are concave in cor porate tax rates, consistent with firms shifting their tax bases to more fa vourably taxed jurisdictions. Additional tests exploit unique features of s tate formula apportionment systems and find manufacturing shipments from st ates that tax outside their borders (throwback states) are decreasing in co rporate income tax rates on sales. (C) 1998 Elsevier Science B.V. All right s reserved.