Zack Hutchins
Director of Communications

For Release — Wednesday, January 10, 2001


ALBANY—Reforming New York State's corporate tax to eliminate taxation of companies' jobs and property in the state could lead to an additional 133,000 jobs while increasing state revenues, a new study by two leading economists concludes.

The study was conducted for The Public Policy Institute, the research affiliate of The Business Council of New York State, by Professor Austan Goolsbee of the University of Chicago's Graduate School of Business and Professor Edward L. Maydew of the Kenan-Flagler Business School at the University of North Carolina.

Existing tax law requires corporations that operate in more than one state to calculate their New York taxable income based on the proportion of their overall sales, employment, and property that are located in the state. Under a section of Tax Law that Governor Carey and the Legislature enacted in 1975, the sales factor is counted twice, and each of the other factors only once, to reduce the tax based on jobs and property and thereby encourage companies to make capital investments and create jobs in the Empire State. (See the hypothetical example at end of this release.)

The Business Council's Board of Directors has identified further change, to what is known as a "single-sales factor" tax, as the top tax-related priority to further strengthen New York State's economy. Under such a change, companies would calculate their taxable income in New York-and thus their Article 9-A state income tax-based only on their sales in the state, and would not include property and payroll as they do now.

Historically, states taxed property, payroll and sales within their borders equally. In the past two decades or so, a number of states have increased the sales weight in their apportionment formulas to reduce the additional tax a business would face when increasing property investment or employment in the state. Some 23 states, including New York, now use the sales factor for half rather than one-third of the apportionment formula. Eleven states have gone further, including six that use sales as the only determinant of corporate tax (the single-sales factor). States that now apply greater weighting to the sales factor than New York does, and thus give employers a greater incentive to locate jobs and plants, include competitors such as Michigan, Illinois, Ohio, Pennsylvania and Massachusetts.

"So long as property and payroll are used in an apportionment formula, expanding employment or property in the state will increase the company's tax burden," Professors Goolsbee and Maydew wrote in their report. "This creates a disincentive to locate in the state."

In their study, the economists analyzed job growth in each of the 50 states from 1978 through 1999, along with changes that 27 states made to their corporate income apportionment rules during the period. Their study controlled for other economic variables, such as national employment and unemployment, and federal corporate tax rates.

The study showed that reducing use of property and payroll in a state's corporate tax formula "has significant positive effects on in-state employment," the economists said. Changing to a single-sales factor would likely increase the number of jobs in New York by 133,000, including 32,000 manufacturing jobs, they estimated. The additional jobs would occur over three years or more.

The new jobs would produce personal income tax revenues that would more than offset the state's estimated losses of corporate tax revenue-a gain of $184 million to $247 million if New York's corporate tax were changed entirely to single-sales factor, the study found. It did not estimate how much other tax collections, such as sales and property taxes, would increase as a result of the new jobs.

"Coupled with neighboring states' aggressive modification of their own apportionment formulae, these results underscore the need for the State of New York to act promptly to remain competitive and avoid revenue and job losses to other states," Professors Goolsbee and Maydew wrote.


The High-Tech Corporation does business in New York as well as in other states. The corporation has 80 percent of its property and payroll, and 50 percent of its sales, in the state. Its total income is $10 million. To determine how much of that income is taxable in New York, the company adds the proportions together, including the sales factor twice:

New York apportionment of total income = (2 x 50% + 80% + 80%)/4 = 65%

Thus, under existing law, 65 percent of the corporation's income, or $6.5 million, would be taxable in New York. Under a single-sales factor tax structure, only 50 percent of the firm's income, or $5 million, would be subject to tax. Applying the 7.5 percent corporate tax rate that will take effect in New York in 2001, the company's savings in this hypothetical example would amount to more than $112,000 a year.

To view the full report by The Public Policy Institute click here.