American Taxation Association

JATA abstracts - 1999 Supplement

1999 JATA Conference
Tax Research

Volume 21, Supplement

Demand for Services: Determinants of Tax Preparation Fees
Peter J. Frischmann and Edward Frees

Economic Foundations of Valuation Discounts
Richard Sansing

The Effect of the Formulary Apportionment System on State-Level Economic Development and Multijurisdictional Tax Planning
Teresa Lightner

Contextual Features of Tax Decision Making Settings
Anne M. Magro


Demand for Services:
Determinants of Tax Preparation Fees

Peter J. Frischmann and Edward Frees

Abstract

We empirically investigate the demand for income tax preparation services by examining factors that affect both the choice and level of utilization of service. We identify the demand factors as the taxpayer's (1) opportunity costs, (2) estimated tax savings when using a preparer, and (3) historical uncertainty in tax liability. Our panel data set allows us to measure individual-specific uncertainty, a new measure in assessing determinants of tax service demand. Consistent with prior research, choice is measured by whether or not a taxpayer uses a professional paid preparer. The preparerís fee is the measure of utilization level. Fee information is heavily censored in part because fees only need to be disclosed when taxpayers itemize deductions and have miscellaneous itemized deductions above the two percent limit. We develop a partially censored regression model to accommodate the censoring.

Similar to Cragg (1971), we decouple the choice and level of utilization models; findings indicate differences between these models. Generally, taxpayers choose paid preparers for time savings and uncertainty protection. Fees, however, reflect the purchase of time and tax savings, not uncertainty protection. These results suggest that pricing structures for professional tax preparation services could be adjusted to more closely reflect the services provided. Top


Economic Foundations of Valuation Discounts

Richard Sansing

Abstract

This paper develops and analyzes two models of asset valuation from which the appropriate discounts for lack of marketability, blockage, and minority ownership are derived. The analysis of the first model shows that a lack of prospective buyers is a necessary but not sufficient condition for a discount for lack of marketability. Heterogeneous beliefs among prospective buyers regarding the value of the asset are also required. A consequence of this result is that the proper marketability discount for an interest in a partnership that holds easily valued investment assets is zero. Analysis of the second model shows that a discount for owning a minority interest reflects the ability of a majority owner to indirectly transfer wealth to himself at the expense of the minority owner. If a discount exists, it is decreasing in the cost of the transfer to the corporation and decreasing in the ownership interest of the majority shareholder. Top


The Effect of the Formulary Apportionment
System on State-Level Economic Development
and Multijurisdictional Tax Planning

Teresa Lightner

Abstract

This paper examines the effect of the formulary apportionment system on state-level economic development. All three apportionment factors, when combined with the corporate tax rate employed by each state, are shown to have a significant negative association with the percentage change in manufacturing employment. However, further analysis suggests that the corporate tax rate, and not the apportionment formula, may be driving employment growth. Also, the findings do not support the importance of the throwback rule or the recent trend to overweight the sales factor in attracting economic development to a state. Top


Contextual Features of Tax Decision Making Settings

Anne M. Magro

Abstract

Prior research in psychology and accounting suggests that features of the decision making task and context affect information processing, yet the decision making context is often ignored in tax judgment and decision making research. Two primary decision contexts in the tax setting are planning and compliance. If these two contexts differ on significant features, the information processing of tax professionals in the settings also is likely to differ. An analysis of the characteristics of tax planning and compliance contexts suggests that planning problems are generally characterized by greater complexity, ambiguity, and justifiability demands than are compliance problems. Experienced tax professionalsí knowledge of these differences in complexity, ambiguity, and justifiability demands of problems in the planning and compliance contexts was tested in an experiment in which decision making context was manipulated. Each participant rated the complexity, ambiguity, and justifiability demands of six research cases. As predicted, participants in the planning condition rated the cases as higher in complexity, ambiguity, and justifiability demands than did participants in the compliance condition. Behavioral implications of these differences were demonstrated in that managers in the planning context budgeted significantly more time for staff to complete tax research than did those in the compliance context. Top

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