Making the Most of a BVT: Lessons From New Hampshire and Michigan

State Tax Notes, 2019

11 Pages Posted: 27 Sep 2019

Date Written: August 1, 2019


States' corporate income taxes (CITs) have become increasingly unreliable in the past 40 years. Scholars have traced this decline to three legal shifts. First, in an effort to channel profits to individual owners, such that they are only subject to personal income taxes, many businesses have abandoned C corporation status to operate as S corporations or limited liability companies. Second, in a rush to foster “entrepreneurial climates,” states have increased their business tax breaks and lowered their real CIT rates by more than 30 percent. Third, Public Law 86-272 has prevented any state from imposing net income taxes on out-of-state businesses that solicit in-state orders for delivery from out of state.

This article argues that a form of VAT called a business value tax (BVT) can help remedy these problems. A BVT is a low-rate tax on all business activity conducted in a state over a specified period. By taxing all business endeavors rather than just profits, and sharply limiting exemptions, a BVT would address the revenue gaps the CIT leaves open. A BVT would thereby increase both revenue levels and stability. It would also escape P.L. 86-272’s restrictions. Policymakers should hence strongly consider enacting a BVT alongside their state’s CIT.

The article proceeds in five parts. Part one describes how a BVT functions. Part two examines the tax’s fiscal benefits. Part three draws on evidence from Michigan and New Hampshire to show that states could effectively administer the tax. Parts four and five then continue to draw on these case studies to analyze how to overcome legal and political challenges to a BVT.

Keywords: tax policy, tax reform, tax law, fiscal policy, state and local taxation, state and local budgets, SALT, federalism, comparative studies

JEL Classification: K34

Suggested Citation

Pilaar, Jeremy, Making the Most of a BVT: Lessons From New Hampshire and Michigan (August 1, 2019). State Tax Notes, 2019. Available at SSRN:

Jeremy Pilaar (Contact Author)

Yale Law School ( email )

127 Wall Street
New Haven, CT 06511
United States
(415) 910-2727 (Phone)


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