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Did FIN 48 Arrest the Trend in Multistate Tax Aggressiveness?

45 Pages Posted: 28 Oct 2009 Last revised: 5 Feb 2014

Sanjay Gupta

Michigan State University - Eli Broad College of Business

Lillian F. Mills

University of Texas at Austin - McCombs School of Business

Erin Towery

University of Georgia

Date Written: November 25, 2009

Abstract

We examine whether state corporate effective tax rates (ETRs) that began trending downward in the 1990s rose in response to FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. We find state ETRs increase substantially in 2006 through 2008 for tax aggressive firms. Firm-level cash tax payments also increased over the 2005 through 2008 time period, controlling for federal and foreign ETR changes. Finally, state-level tax collections increased in 2006 and 2007. Consistent with analytic and behavioral theory, our results suggest that FIN 48 helped arrest the trend in multistate tax aggressiveness.

Keywords: state taxation, tax reserves, tax aggressiveness, ASC 740-10-25, FIN 48, uncertain tax benefits

JEL Classification: H25, H26, M41

Suggested Citation

Gupta, Sanjay and Mills, Lillian F. and Towery, Erin, Did FIN 48 Arrest the Trend in Multistate Tax Aggressiveness? (November 25, 2009). McCombs Research Paper Series No. ACC-10-09. Available at SSRN: https://ssrn.com/abstract=1477068 or http://dx.doi.org/10.2139/ssrn.1477068

Sanjay Gupta

Michigan State University - Eli Broad College of Business ( email )

632 Bogue Street, 520 BCC
East Lansing, MI 48824
United States
517-432-6488 (Phone)

HOME PAGE: http://www.broad.msu.edu/

Lillian F. Mills

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

Erin Towery (Contact Author)

University of Georgia ( email )

Terry College of Business
Athens, GA 30602-6254
United States

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