Binding Choices: Tax Elections & Federal/State Conformity

64 Pages Posted: 5 Nov 2012 Last revised: 6 May 2013

Heather M. Field

University of California Hastings College of the Law

Date Written: November 5, 2012

Abstract

The federal government wields tremendous power over state fiscal policy because most states’ income tax laws conform, at least to some degree, to the federal income tax laws. Extensive literature discusses the advantages and disadvantages of this tax base conformity, but scholars generally assume that the question facing state governments is to what extent the state tax provisions should conform to the federal tax provisions. Where the federal tax law provides explicit tax elections (e.g., a married couple’s choice to file jointly or separately), however, state legislators must decide not only whether the state law will conform to the federal law (i.e., affording taxpayers the same choice for state tax purposes), but legislators must also decide whether to bind each taxpayer, for state tax purposes, to the taxpayer’s federal tax choices. This additional decision matters because the simplicity, administrability, and revenue implications of election conformity can depend on whether and how state legislators constrain the taxpayer autonomy provided by the elections. Further, this additional decision presents a fundamental federalism question about how power over state fiscal policy should be allocated among the federal government, the state government, and the taxpayers themselves. Yet, despite the large number of tax elections in the federal income tax law, the existing literature regarding federal/state tax base conformity fails to provide guidance about how state legislators considering conformity to federal tax law should take into account the optionality inherent in explicit elections. This article fills that gap.

Keywords: tax elections, state taxation, tax base, conformity, fiscal federalism

JEL Classification: H2, H71, H73, K34, K39

Suggested Citation

Field, Heather M., Binding Choices: Tax Elections & Federal/State Conformity (November 5, 2012). Virginia Tax Review, Vol. 32, 2013; UC Hastings Research Paper No. 8. Available at SSRN: https://ssrn.com/abstract=2171339

Heather M. Field (Contact Author)

University of California Hastings College of the Law ( email )

200 McAllister Street
San Francisco, CA 94102
United States

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