Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
By Che Odom
The new federal tax law could lead to the relocation of businesses and shifts in population among states over the next few years.
Such changes could mean a boost for cities such as Nashville, Tenn.; Austin, Texas; and Charlotte, N.C., which have low tax rates and relatively cheap housing, to the detriment of cities in New York, Connecticut, New Jersey, California, and Illinois, according to some tax practitioners.
The movement in population may come as a result of changes in state business taxes and the treatment of carried interest in the works in a number of states.
However, the extent of such movement is uncertain, and studies have shown that taxes have had almost no impact on population shifts, according to some think tanks.
States are responding differently to the sweeping 2017 federal tax act ( Pub. L. No. 115-97). This may cause “disequilibrium” among states that could encourage companies to cross borders, said Scott Roberti, executive director of indirect tax and state/local tax policy at Ernst & Young LLP.
“These differences are probably not great enough” to lure existing companies but may make a difference for investment and startups, Roberti said during a May 3 EY tax conference in New York.
“Under the old regime, states were at a equilibrium in that states had established their tax regimes in a way which created relative stability relative to the climate of capital across the states,” Roberti said. “Sometimes, with respect to certain sectors, states tended to have policies that benefited businesses” that were most important to them, within their boundaries.
“So the question now is, ‘Is this a destabilizing event?’” he said. “Does this create a disequilibrium across the states? And the states are in the position of having to review their competitive position vis-a-vis other states.”
So far, most states haven’t addressed the business-income provisions of the federal tax law, focusing first on individual income taxes.
Some states will take advantage of the base broadening provided by the new federal law to increase revenue, but this will have a minimal impact on whether states decide to relocate, Michael Leachman, director of state fiscal research at the liberal-leaning Center on Budget and Policy Priorities, told Bloomberg Tax.
“Is it true that they would leave in significant numbers?” Leachman said. “No, this has been studied extensively.”
But two economists, conservatives Arthur Laffer and Stephen Moore, predict that states, such as New Jersey, should expect residents to leave for states with lower tax burdens as a result of the federal tax law. The two wrote in the Wall Street Journal last month that New Jersey will lose about 800,000 residents who will be looking at the new tax landscape for places with lower marginal taxes.
Such migration concerns are “overblown,” Carl Davis, research director at the liberal-leaning Institute on Taxation and Economic Policy, told Bloomberg Tax.
“High-income earners tend to move less often than everyone else because they are already living comfortably,” Davis said. “There is no need for them to uproot their lives in search of a tax savings that will not meaningfully impact their quality of life.”
Academic research shows that taxes don’t have a significant impact on migration, Davis said.
“There are too many other factors at play, and they matter much, much more in determining where people will choose to live,” he said. “Compared to all the other expenses involved in running a business, state and local taxes are a very small piece of the puzzle.”
Business owners tend to stay put because they have developed a network of strong ties to their local communities, Leachman said. “They are less likely to move than non-business owners,” he said.
To contact the reporter on this story: Che Odom in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Ryan C. Tuck at email@example.com
Copyright © 2018 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)