individual income tax, the corporate income tax is largely
from the federal corporate income tax. The starting point for
the corporate income tax, however is federal taxable income. There
are only two rates of corporate income tax, 5.58% and
7.81%. The higher rate is for all corporate income greater
policy issue for Nebraska, and other states, is how the income
of a multistate enterprise is allocated to Nebraska. For the
last 15 years, Nebraska has apportioned multistate income
on sales the company makes in the state. Many states continue
to consider the amount of property and payroll in the state,
practice that was universal 25 years ago. There are further details
on this issue that are covered in "Program History
Policy and the Corporate Income Tax
- The corporate income tax is both unstable and slow growing. From
fiscal year 1980-81 to FY2000-01, the corporate income tax
grew only 0.42 times as fast as personal income and fluctuated
wildly. Recently, the corporate income tax has rebounded and
been quite productive. However, this recent trend is unusual
both in Nebraska and when examining other states' experience
with the tax. Recent rapid growth may be aberrational. This growth
pattern is detailed in the analysis entitled "Corporate
Income Tax Receipts, the Economy, and State Tax Receipts".
- With regard to the corporate income tax, equity considerations
are mixed. The existence of a corporate income tax does help
assure similar treatment of businesses regardless of business
form. Thus, the tax is important for horizontal equity. However,
the corporate income tax itself may not levy the same burden
a similar business organized as a partnership, LLC, etc. Also,
there is little relationship between tax liability and any benefits
derived by the corporation from the state.
rules for multi-state corporations result in different treatment
of similar in-state versus out-of-state corporations, and for
corporations involved in selling versus manufacturing. The availability
of economic development credits also varies from business to business.
Many of these differences are intentional, designed to stimulate
economic growth and may be desirable. Nevertheless, from an objective
standpoint, incentives do not treat similar taxpayers in similar
ways. There would be no incentive if they did.
Simplicity - Because calculating the tax
uses much of the same information as is presently collected by
the Internal Revenue Service, the corporate income tax, like the
individual income tax, is relatively easy to administer.
Accountability - Corporate income tax is
not paid by the individual so there is little taxpayer accountability
for the tax, or need for it.
competitiveness - There is much uncertainty as to the
impact state and local taxes have on business relocation. Empirical
evidence as to the impact tax levels in general have on
is inconclusive, but the most recent studies tend to support
the notion that high tax rates have a negative impact on
growth all else being equal, including state spending. The problem
is where the state is not constitutionally permitted to
borrow money, it as impossible to tax less and spend just
as much over the long term. Nebraska's corporate income
tax has nominally high rates, but there are a number of
advantages and tax incentives
that lower corporate liabilities. The tax clearly is not neutral,
largely because it is not designed to be neutral.
Point from the Analysis
income tax has been a rapidly declining source of revenue
for the state.
In FY1980-81, the corporate income tax contributed about 7% of
total state tax receipts. In FY2001-02, it was less than 4%. This
occurred despite tax rate increases in the 1980s and no
cuts in the 1990s. After a sharp decline in receipts for FY2001-02,
the rate of growth in corporate income tax was less than the
of inflation growth since 1980. This decline is shown in a number
of different ways in the analysis
"Corporate Income Tax
Receipts, the Economy, and State Tax Receipts".
in relative importance is due in part to state law changing
apportionment of the tax and granting tax incentives to stimulate
economic growth. As much as 50% of the decline may be attributed
to tax incentives using one method of analysis. In addition
the greater use of employment and investment incentives, causes
of this decline include more aggressive state tax planning
the corporations themselves and a greater use of other forms
of business organization, like joint ventures, corporate partners,
is not unique to Nebraska. Commentators have lamented the
of the corporate income tax nationally in recent years. According
to many experts, the contribution of the corporate income
to state revenues nationally has declined by half in the last
30 years (State Tax Review, July 22, 2002). This was
about the same decline in relative importance as experienced
through FY2005-06, corporate income tax receipts rebounded
to more than 6.8% of state
receipts, nearly equal to the share in 1980. This observation
broke a long string of declines and may have been an aberration.
Results for FY2006-07 show a declining share and may be a resumption
of the old trend.