Tax Competition Between States
| Date | 01 January 1940 |
| DOI | 10.1177/000271624020700109 |
| Author | James W. Martin |
| Published date | 01 January 1940 |
| Subject Matter | Articles |
62
Tax
Competition
Between
States
By
JAMES
W.
MARTIN
GENERALLY
speaking,
three
vari-
eties
of
state
tax
policy
are
trace-
able
to
interjurisdictional
competition.
The
specific
forms
are
almost
as
nume-
rous
as
the
multitude
of
statutes
which
impose
them.
Neglecting
refinements,
the
major
policies
may
be
stated
cate-
gorically,
then
discussed
in
turn.
(1)
Many
states
employ
exemptions
and
other
tax
favors
as
a
means
of
fostering
&dquo;home
industry.&dquo;
(2)
States
frequently
impose
tax
measures
designed
to
dis-
criminate
against
out-of-state
industry
or
business
or
against
the
use
of
raw
materials
produced
outside the
state.
(3)
Legislators
and
tax
administrators
often
try
to
reach
beyond
the
state
for
tax
resources.
INTERSTATE
TAX
COMPETITION
THROUGH
TAX
FAVORS
One
of
the
most
usual-and
one
of
the
crudest-forms
of
interstate
tax
competition
is
found
in
several
varieties
of
tax
favors
to
economic
enterprise,
prompted
in
some
measure
by
a
desire
to
lure
it
away
from
other
places
or
to
promote
its
development
within
the
tax-
ing
state.2
2
The
tax
favor
is
bestowed
in
various
forms,
a
few
of
the
most
im-
portant
of
which
will
be
outlined.
The
most
obvious
variety
of
tax
fa-
vor
is
the
outright
exemption
of
the
favored
property,
income,
sale,
or
other
activity.
Although
exemptions
for
this
purpose
occur
in
all
sorts
of
tax
meas-
ures,
property
tax
practice
will
afford
sufficient
illustration.
Almost
invariably,
state
laws
provide
for
certain
agricultural
exemptions.
The
most
usual
type
is
exemption
of
growing
crops.
This
is
prompted
by
other
con-
siderations-economic
and
administra-
tive-so
that
it
may
be
ignored
for
pres-
ent
purposes
as
long
as
confined
to
usual
practice.
However,
the
situation
is
dif-
ferent
where
under
such
a
guise
Tennes-
see
exempts
all
raw
tobacco
in
storage
or
Maine
exempts
mature
livestock
on
farms
or
Mississippi
provides
a
five-year
exemption
for
livestock
almost
generally.
Another
type
provides
partial
or
com-
plete
exemption
for
specified
kinds
of
industrial
or
agricultural
property.
The
Jensen
study
already
cited
enumerates
a
variety
of
instances,
and
a
more
re-
cent
announcement
by
the
National
As-
sociation
of
Assessing
Officers
adds
nu-
merous
others
which
reflect
subsequent
legislation.
It
is
in
this
area
that
inter-
state
bidding
with
tax
favors
for
indus-
trial
development,
especially
manufac-
turing,
becomes
most
extreme
and
to
many
minds
most
offensive.3
3
Among
the
specific
cases
of
these
spe-
cial
exemptions,
a
few
illustrations
will
suffice.
The
Kentucky
Constitution
provides
that
the
General
Assembly
may
authorize
granting
temporary
exemption
from
municipal
taxes
to
manufacturing
plants.
Mississippi
and
Louisiana
have
become
notorious
for
the
character
and
the
extent
of
such
exemptions.
How-
ever,
they
are
not
alone,
for
nearly
all
1
In
fairness
to
Dr.
Martin,
I
should
like
to
record
that
the
manuscript
of
this
article
was
received
and
acknowledged
by
me
on
August
11,
1939,
one
month
prior
to
the
publication
of
Professor
Mabel
Newcomer’s
somewhat
parallel
article
in
the
September
issue
of
Tax
Magazine.
—The
Editor.
2
Jens
P.
Jensen,
Tax
Exemption
as
a
Means
of
Encouragement
to
Industry
(University
of
Kansas),
especially
pp.
42
ff.
See
also
James
W.
Martin,
"General
Theory
of
Tax
Exemp-
tion,"
Chap.
I
in
Martin
and
others,
Tax
Ex-
emptions,
pp.
3
ff.,
as
well
as
sources
cited
pp.
223
ff.
3 One
of
the
most
interesting
current
discus-
sions
is
found
in
Kenneth
McCarren,
"Luring
Industry
through
Tax
Exemption,"
Martin
and
others,
ibid.,
Chap.
III.
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