{'fraction_non_alphanumeric': 0.013917884481558803, 'fraction_numerical': 0.008350730688935281, 'mean_word_length': 5.4774774774774775, 'pattern_counts': {'":': 0, '<': 0, '<?xml version=': 0, '>': 0, 'https://': 0, 'lorem ipsum': 0, 'www.': 0, 'xml': 0}, 'pii_count': 0, 'substrings_counts': 0, 'word_list_counts': {'cursed_substrings.json': 0, 'profanity_word_list.json': 0, 'sexual_word_list.json': 0, 'zh_pornsignals.json': 0}}
An Exploration of the Antecedents and Consequences of State Income Tax Nexus: Does Economic Nexus Really Benefit States?

While considerable attention in the state taxation literature has been devoted to understanding how much of a corporation’s income is subject to tax in a state, much less has been placed on understanding the more critical question of whether a corporation is subject to tax in a given state in the first place (Wildasin 2010). This study investigates the antecedents and consequences of state income tax nexus with a two-stage least squares model using an instrumental variable approach and panel data from 2000-2009. The results of this model indicate that states are more likely to adopt economic nexus standards when bordering states have also adopted these provisions, consistent with regional diffusion theory. Interestingly, states that adopt economic nexus standards have lower levels of corporate taxation revenue than those that follow a physical presence standard; results are robust to alternative specifications of economic nexus. Economic nexus is a broader requirement than physical presence and generally subjects more corporations to state income tax. These results contribute to the taxation literature by suggesting that states’ adoption of economic nexus standards are carried out for herding (regional diffusion) reasons and are associated with negative consequences for state taxation revenues.