EMERGING STATE BUSINESS TAX POLICY: MORE OF THE SAME OF
FUNDAMENTAL CHANGE?
William F. Fox
billfox@utk.edu
LeAnn Luna
leann@utk.edu
Matthew N. Murray
mmurray1@utk.edu
Center for Business and Economic Research
The University of Tennessee
804 Volunteer Blvd
100 Temple Court
Knoxville, TN 37996
March 2007
DRAFT
Do Not Quote Without Permission of the Authors
1
EMERGING STATE BUSINESS TAX POLICY: MORE OF THE SAME OF
FUNDAMENTAL CHANGE?
William F. Fox, LeAnn Luna, and Matthew N. Murray
INTRODUCTION
Much of the state tax policy discussion during the past decade has centered on the
performance of corporate income taxes and ways to restructure them. It is interesting that
corporate taxes receive so much attention in state capitols, industry location decisions and
the media given the relatively small contribution that they make to total tax receipts.
State corporate income taxes comprised only 6.0 percent of total state tax revenues in
2005, and even combined with corporate license taxes, which include the value-based
franchise taxes among others, represented only about 7.1 percent of taxes.1 Indeed,
corporate income taxes provide no more than 10 percent of total state and local business
taxes.2 There are several possible explanations, including the visibility of corporate
facilities, perceptions of corporate tax abuse and the difficulty of generating revenues
from other sources. Though the issue of why the corporate income tax draws such
attention may be a fascinating study, we will simply accept that states have considered
and made many changes in corporate income tax even if they may have found other areas
with more revenue potential.
This paper focuses on state responses to the weak corporate tax collections during
the 2000 to 2003 time period as well as to the revenue performance during the years
immediately preceding and following the recession. The paper is not an attempt to argue
that the corporate income tax is an important compone