Strategic Cost Shifting and State Tax Minimization

Posted: 18 Aug 2013 Last revised: 11 Jan 2017

See all articles by Curtis M. Hall

Curtis M. Hall

Drexel University - Bennett S. LeBow College of Business

Stephen J. Lusch

Texas Christian University - Department of Accounting

Date Written: December 3, 2016

Abstract

In this study, we predict and find that multistate bank holding companies strategically allocate costs among their subsidiary banks to minimize tax. In particular, we find that high tax subsidiary banks report higher costs than low tax subsidiary banks within the same bank holding company. Additional tests provide evidence of cost shifting rather than operational differences amongst states. In particular, we find that high tax subsidiary banks of multistate bank holding companies report higher costs than single state banks in the same high tax state. Our study provides a unique contribution to the cost allocation and tax management literature by directly linking tax reduction incentives to cost allocation and documenting an alternative type of state tax minimization strategy in the banking industry.

Keywords: cost management; tax management; banks; state taxation

JEL Classification: G21, H25, H71, M41

Suggested Citation

Hall, Curtis M. and Lusch, Stephen J., Strategic Cost Shifting and State Tax Minimization (December 3, 2016). AAA 2014 Management Accounting Section (MAS) Meeting Paper; Journal of Management Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2311477 or http://dx.doi.org/10.2139/ssrn.2311477

Curtis M. Hall (Contact Author)

Drexel University - Bennett S. LeBow College of Business ( email )

Philadelphia, PA 19104
United States

Stephen J. Lusch

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States

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