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 preparer’s 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 professionals’ 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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