1998 JATA Conference Multijurisdictional Tax Issues

Volume 20, Supplement

The Impact of State Taxation on the Investment Portfolio of Banks

Roby B. Sawyers and Mark S Beasley


This study examines the relation between state corporate tax provisions and the investment portfolios of banks. Consistent with federal tax laws, certain states disallow state tax deductions for interest expense incurred in generating tax-exempt income. However, three states have tax-law provisions allowing banks to deduct the interest expense incurred to earn tax-exempt interest on U.S. government and municipal securities. Recently, the effects of this difference in state tax policy and its impact on state income taxes paid by banks and their investment portfolios have been debated. Critics argue that this provision encourages banks in deduction states to invest more heavily in tax-exempt securities than banks in states without the deduction provision. This study provides insight to the debate by empirically finding that the impact of the deduction provision is contingent on the bank’s state marginal income tax rate. As banks face higher marginal state income tax rates in deduction states, they are significantly more likely to invest a greater percentage of their assets in U.S. government securities than banks facing low tax rates in deduction states or banks in states not allowing the interest expense deduction. These results should be relevant to state tax policy makers and banking industry officials who have a vested interest in the debate of this provision.  

Taxes as a Determinant of Foreign-Owned Property-Liability Insurers’ Investment Strategies in the United States

Bin Ke, Edmund Outslay and Kathy R. Petroni


This research investigates the influence of home-country tax systems on foreign-owned property-liability insurance company investment strategies in the United States. Specifically, we compare the investment strategies of foreign insurers subject to home-country territorial and worldwide tax regimes. We predict that U.S. subsidiaries and branches of foreign insurers domiciled in territorial tax countries will hold more U.S. tax-favored assets than their counterparts subject to a worldwide tax regime. We also predict that U.S. subsidiaries of foreign-owned insurers domiciled in worldwide tax countries will hold more U.S. tax-favored assets than branches of such companies. Consistent with our prediction, we find that worldwide branches invest a significantly smaller proportion of their asset in U.S. tax-exempt bonds than do territorial insurers (both branches and subsidiaries). However, we find no statistically significant difference in the investment practices of worldwide subsidiaries and territorial subsidiaries. These results indicate that tax deferral available to worldwide subsidiaries may be the equivalent of tax exemption for investment in U.S. tax-exempt bonds. The results contribute to a stream of research that investigates how alternative tax regimes affect direct foreign investment in the United States (e.g., Collins et al. 1995; Hines 1996, 1997; Scholes and Wolfson 1990). 

 Distortion Caused by the Use of Arm’s-Length Transfer Prices

David G. Harris and Richard C. Sansing


This paper examines the effects of using an arm’s-length transfer price, such as the Comparable Uncontrolled Price (CUP) method, to allocate income for tax purposes between a manufacturing entity and a selling entity within a multinational enterprise (MNE). The CUP method allocates disproportionately high levels of income earned by the MNE to the manufacturer in our model. This result is consistent with the anomaly identified in Grubert et al. (1993) and Collins et al. (1997), in which U.S. subsidiaries of foreign MNEs frequently report zero, or near-zero, taxable income. In addition, the CUP method distorts decisions regarding production and organizational structure when the tax rates in the two countries differ. 

 The Effects of Alternative State Tax Regimes of Firm’s Accounting and Financing Decisions

Susan L. Porter


State taxes as a proportion of total corporate taxes have been rising over the past decade. As a result, state tax planning is becoming increasingly important. Prior tax research has examined the effect of federal taxes on management financing and accounting decisions. This study expands upon this research by examining the effects of differing state tax regimes on management decisions. California’s income tax, Michigan’s value-added tax and Texas’ net worth tax are examined, and hypotheses are developed about how accounting and financing decisions are affected by these very different types of taxes. Test variables include the level of debt and accounting accrual choices. Results suggest that firms’ levels of discretionary accruals are differentially affected by different state tax regimes.

A Letter From Our President

Jenny Brown
ATA Section President

Greetings ATA Members and Colleagues,                             

Welcome to the 2023/2024 academic year!

First, thank you for giving me the opportunity to serve as your president this year. The ATA is an extraordinarily collegial group, and I feel privileged that it has been a significant part of my professional life since I was a PhD student at the University of Texas, 20-plus years ago. Over the years, I have seen the ATA change and evolve to better meet the needs of its members, but one thing remains the same ­– the ATA continues to be my primary professional home outside my own university. 


ATA Memorial Fund

The ATA created this fund to provide a vehicle for ATA members to contribute in memory of deceased ATA members and friends.

Learn More

Tax Career Center

Visit the AAA Career Center to Explore Opportunities in Tax Positions

From Analytics to Auditing, or Corporate Tax to Tax Law, there are great career opportunities awaiting you in Tax related fields.

Learn More at the
Career Center