The Association between Internal Information Quality and State Tax Planning

44 Pages Posted: 11 Nov 2017

See all articles by Stacie Kelley Laplante

Stacie Kelley Laplante

University of Wisconsin - Madison

Dan Lynch

University of Wisconsin - Madison - Department of Accounting and Information Systems

Mary Vernon

University of Wisconsin - Madison

Date Written: November 8, 2017

Abstract

This study examines if internal information quality facilitates state tax planning. Due to the considerable number of tax jurisdictions, variety of tax rules, and enforcement mechanisms, state taxes are one of the most complex areas for tax planning. Prior literature finds that internal information quality is positively associated with summary measures of tax planning. However, we know little about what specific forms of tax planning drive this association. We conjecture that the complex area of state tax planning is one of the forms of tax planning that benefits from strong internal information quality. Consistent with this conjecture, we find that higher internal information quality is positively associated with state tax planning. We also find that domestic firms drive this relation, consistent with multinational firms focusing more on international tax planning. Finally, using a structural equation model that allows different forms of tax planning to covary with each other, we find a positive association between higher levels of internal information quality and both state and foreign tax planning. We fail to find a significant association between internal information quality and federal tax planning. Taken together, our results imply that internal information quality is most important for complex, multi-jurisdictional areas of tax planning.

Keywords: Internal information, tax avoidance, tax planning, state tax

JEL Classification: H26, H71, H72

Suggested Citation

Laplante, Stacie Kelley and Lynch, Dan and Vernon, Mary, The Association between Internal Information Quality and State Tax Planning (November 8, 2017). Available at SSRN: https://ssrn.com/abstract=3067519 or http://dx.doi.org/10.2139/ssrn.3067519

Stacie Kelley Laplante

University of Wisconsin - Madison ( email )

975 University Avenue
Madison, WI 53706
United States
608-265-3494 (Phone)
608-265-3494 (Fax)

Dan Lynch (Contact Author)

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

Mary Vernon

University of Wisconsin - Madison ( email )

Madison, WI
United States

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