Exporters are vital to the health of the U.S. economy as well as to individual state economies. As such, this study analyzes the export-related provisions of the southeastern states’ income tax laws and proposes tax policy changes that could potentially improve the tax environment for exporters while enhancing the overall economic environment in those states.
In order to develop and support tax policy recommendations relating to state’s tax treatment of exporters, statistics that highlight the importance of exports to the domestic economy are reviewed. In addition, a summary of Federal tax law incentives available to exporters is provided along with several Treasury Department studies that estimate the impact the federal tax law incentives have had on the volume of exports. Also, key issues under state income tax laws regarding the treatment of export transactions are highlighted while providing a comparative analysis of the southeastern states’ treatment of export transactions using foreign sales corporations (FSC).
The results of this study demonstrate not only that disparity among the southeastern states treatment of exporters exists, but also that the method used by state governments to tax FSCs could impact the extent to which corporations find it desirable to export their goods from a particular state. Based on these findings, the authors suggest the adoption of administrative pricing rules (similar to the rules in place for Federal tax purposes) for FSCs by states not currently allowing these rules, which would decrease the effective tax rate on export sales. The reduction in taxes could ultimately provide an incentive for domiciled corporations to increase exporting activities, contributing to increased domestic jobs and overall economic activity.
Ernest R. Larkins, Jorge Martinez-Vazquez, and John J. Masselli. A Comparative Analysis of Southeastern States’ Income Tax Treatment of Exporters. Fiscal Research Center School Of Policy Studies Georgia State University Atlanta, Georgia May 1998