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American Taxation Association |
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American Taxation Association |
JATA - Fall 1999Volume 21, No. 2 MAIN ARTICLES The Effect of Taxes on
Corporate Debt Maturity Decisions: An Analysis of Public and Private
Bond Offerings Tax Holidays and Firms'
Subsidiary Location Decisions Exploiting and Sharing
Tax Benefits: Seagram and Du Pont Why Do People Give Interest-Free
Loans to the Government? An Experimental Study of Interim
Tax Payments Tax Professionals’ Interpretations
of Ambiguity in Compliance and Planning Decision Contexts EDUCATORS' FORUM Implementing Teaching
Portfolios and Peer Reviews in Tax Courses Kaye J. Newberry and Garth F. Novack Abstract This paper tests theoretical predictions of a relation between taxes and corporate debt maturity decisions using bond offerings (public and private) during 1988-1995. Consistent with predictions of a tax clientele effect, a positive relation between firms' marginal tax rates and the maturity term of their corporate bond offerings is found. Also consistent with tax predictions of a term structure effect, the results indicate that firms issue corporate bonds with longer maturities in periods characterized by large term premiums (for long- versus short-term interest rates). In periods with large term premiums, long-term bonds accelerate interest deductions into the early years of the bond obligation (with the present value of pre-tax interest payments being no more for the long-term bond than for successive short-term bond issues). These findings extend prior research on determinants of financing choices by providing some of the first empirical evidence that taxes are related to corporate debt maturity decisions. Top Tax Holidays and Firms' Subsidiary Location Decisions Louise E. Single Abstract This research addresses the importance of tax holidays in the subsidiary location decisions of U.S.-based multinationals. The study uses the Analytic Hierarchy Process (AHP) as a basis for the development and analysis of the importance of location and firm-specific factors in multinationals’ plant location decisions. Sixty-six experienced tax executives of major U.S.-based multinationals were asked to review a case study involving a subsidiary plant location scenario and to evaluate the relative importance of all of the relevant location-specific factors using the AHP method of pairwise comparisons. The results indicate that tax holidays are rated among the lower half of a set of 29 factors that firms consider. However, when tax holidays are relavant they act as an incentive to investment rather than discouraging it. The availability of tax sparing credits and the firm’s foreign tax credit status have little impact in making tax holidays more influential relative to other decision factors. Top Exploiting and Sharing Tax Benefits: Seagram and Du Pont Merle Erickson and Shiing-wu Wang Abstract In April of 1995, Seagram sold 156 million Du Pont shares back to Du Pont for $8.8 billion to finance its acquisition of MCA. Clever structuring of Du Pont’s redemption generated tax savings of approximately $1.8 billion for Seagram and Du Pont. Du Pont captured about $800 million of the total tax benefits in return for facilitating the tax saving structure. In spite of tax benefits of approximately $1 billion, Seagram’s equity value declined by more than $2.5 billion in response to the Du Pont redemption/MCA acquisition. Our analyses provide some evidence that a portion of these wealth effects are attributable to the loss of Du Pont’s earnings, which accounted for approximately 65 percent of Seagram’s reported profits. As part of the financial accounting for the Du Pont sale, Seagram recorded a $1.5 billion deferred tax liability and this financial accounting liability appears to be significantly overstated in economic terms. Top Benjamin C. Ayers, Steven J. Kachelmeier, and John R. Robinson Abstract U.S. taxpayers remit substantial interim tax overpayments. This study uses a case-based experiment with 162 experienced MBA-student volunteers to investigate taxpayer preferences for excess interim tax remittances in the absence of default withholding rules, transaction costs, and other sources of complexity. Findings indicate that even if taxpayers are given full discretion for the amounts paid, 43 percent indicate a preference to pay more than a known minimum amount. Further analysis indicates that the degree of uncertainty associated with estimating the current-year tax liability significantly increases the propensity to overpay on an interim basis, but that this effect diminishes with taxpayer experience. Preferences are robust to whether taxes are remitted as withholding from wages or as direct payments of estimated taxes. Findings are consistent with behavioral theories that explain why individuals’ intertemporal choices. Top Tax Professionals’ Interpretations of Ambiguity in Compliance and Planning Decision Contexts Brian C. Spilker, Ronald G. Worsham, Jr., and Douglas F. Prawitt Abstract A generally accepted finding from prior research is that in compliance decision contexts tax preparers exploit ambiguity in tax rules to help clients reach favorable reporting positions. Using an experiment with big-six partners, senior managers, and managers as subjects, this study accomplishes three objectives. First, by directly manipulating the level of ambiguity within a single tax scenario, this study confirms the result that tax professionals interpret ambiguity to the benefit of clients in compliance decision contexts. Second, this study provides initial evidence that decision context affects the way professionals interpret ambiguity. Specifically, the results suggest that tax professionals interpret ambiguity aggressively in compliance contexts but relatively conservatively in planning decision contexts. Finally, this study provides evidence that tax professionals exploit precise tax rules to achieve client-preferred outcomes in planning decision contexts. These findings provide insights useful for understanding tax professionals’ judgments and have potential tax policy implications. Top Implementing Teaching Portfolios and Peer Reviews in Tax Courses Michael J. Calegari, Gregory G. Geisler, and Ernest R. Larkins Abstract Extant literature suggests that the process of constructing a teaching portfolio can identify areas to improve, motivate positive changes, and elevate the importance of teaching in academe. This study describes the experience of the tax faculty at a public university in using teaching portfolios and peer reviews to improve the quality of the first two tax courses. The type of teaching portfolio used in this project consists of a course syllabus and a reflective statement that documents the rationale for all components of a course (i.e., lectures, projects, exams, writing assignments, presentations, etc.). The peer review aspect involves written feedback from a colleague on this teaching portfolio. Though research publications are usually subject to extensive peer review, teaching generally is not. Like research, however, teaching can be evaluated and ultimately improved through peer review. Thus, this study can provide valuable guidance to tax professors attempting to improve their courses. Top |