Do Property Taxes Affect Real Operating Decisions and Market Prices for Crude Oil?

Abstract

This study investigates the effect of personal property taxes on real business decisions. Consistent with tax avoidance, we posit that personal property taxes are associated with decreases (increases) in inventory prior to (following) assessment dates. We empirically test this prediction using monthly crude oil inventory data. We find that in locations where crude oil inventory is subject to taxation, total and refinery-level crude oil inventories are reduced prior to assessment dates and increased in the following period, when compared to locations with no tax. The results provide empirical evidence that personal property taxes play a role in the operating decisions of firms. We also examine the pricing implications of these tax driven changes in crude oil inventory and find that the market seemingly adjusts crude oil prices around assessment dates demonstrating that the market acts as if it understands these changes in crude oil inventory are not simply due to supply and demand effects.

Keywords: non-income taxes, real activities management, property taxes, crude oil, inventory

JEL Classification: H25, H71, M48, M49