STATE TAXATION OF CORPORATE NET INCOME: ARE LOCAL CORPORATIONS PAYING MORE THAN THEIR FAIR SHARE?

State corporate income tax laws commonly use 3 methods to divide net income of multistate-multinational corporations among the states: 1. specific allocation of items of passive or nonbusiness income either to the state in which the property is located or to the state of corporate domicile, 2. separate accounting of the corporation's activities taking place solely within the taxing state, and 3. formulary apportionment of the average percentage of corporate property, payroll, and sales in the taxing state in relation to the whole income. The variation among the laws of the different states suggests that purely local corporations pay more than their fair share of state income taxes. There are 3 suggested solutions: 1. Abolish state corporate income taxes. 2. Make progressively uniform the corporate tax base and apportionment formula. 3. Require the states to adopt a uniform apportionment formula based on payroll, property, and sales.