“Tax Inversion within the United States: Evidence from State Corporate Tax Rate Changes” by Dr. Jeffrey NG
Dr. Jeffrey NG
Associate Professor of Accounting
School of Accountancy
Singapore Management University
The state tax apportionment system in the United States makes headquarters location an important consideration in terms of tax planning. Using staggered corporate tax rate changes, we find that increases in tax rates increase the likelihood of a firm relocating its headquarters to a state with lower tax rates; we term such headquarters relocations tax inversion. Consistent with the implications of the state tax apportionment formula, we find that conditional on an increase in corporate tax rates, firms are less likely to invert when state tax apportion factor weights favor a within-state headquarters location or when firms rely on tax havens to reduce taxable income. Finally, we find that conditional on an increase in corporate tax rates, higher state wage tax rates increase the likelihood of tax inversion, suggesting that the tax-incentive alignment of the firm and its employees increases the likelihood of inversion.