On the Effectiveness of Single Sales Factors for State Taxation

This study models and empirically tests the impact on local employment from switching to a single sales factor (SSF) formula for state corporate income tax purposes. The study first models the optimal location choice decisions of a firm in response to differential state income apportionment rules while controlling for different tax structures. The model is then tested in five states which recently switched to single factor apportionment rules. Results indicate that SSF increased net employment in the five states examined. However, this net employment increase was comprised of an employment increase for locally-based firms, and a decrease for out of state-based firms. The study uses a new database which provides establishment level data, by exact locations, for both public and privately-owned firms.