Mills, Lillian; Erickson, Merle M; Maydew, Edward L. The Journal of the American Taxation Association; Sarasota Том 20, Изд. 1, (Spring 1998): 1-20.
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This paper analyzes investments in tax planning. The literature is replete with examples of specific tax-planning strategies. However, little is known about how firms invest in tax planning to develop these strategies or the firm-wide returns to investments in tax planning. We use data from a confidential survey by Slemrod and Blumenthal (1993) in which 365 large U.S. corporations shared data on their taxrelated expenditures. We find that: (1) planning costs (as a percentage of selling, general and administrative expenses (SG&A)) decrease in firm size; (2) firms with foreign operations invest more heavily in tax planning; (3) capital intensity and number of legal entities are positively related to tax-planning costs; and (4) inventory intensity and leverage are unrelated to tax-planning costs. Finally, our estimates indicate a negative relation between investments in tax planning and tax liabilities. On average, an additional $1 investment in tax planning results in a $4 reduction in tax liabilities. This relation holds over specifications with and without industry controls, within the manufacturing industry alone, and in the presence of controls for tax-planning opportunities, although the magnitude does vary.
The purpose of this paper is to examine firms' investments in tax planning. Our inquiry is prompted by the lack of research on the most fundamental input in firms' tax strategies-investments in tax planning. The costs of such investments are substantial. The 1.329 active firms in the Internal Revenue Service's Coordinated Examination Program, on which our sample is based, spent approximately $1.4 billion in aggregate on federal tax-related matters in 1991 (Slemrod and Blumenthal 1993). These same firms paid approximately $51 billion in taxes that year, representing more than 50 percent of all corporate tax revenues in 1991 (Internal Revenue Service 1995). While the literature is replete with examples of specific tax-planning strategies, little is known about how firms invest in tax planning to develop these strategies or the firm-wide returns to investments in tax planning.'
This paper analyzes the determinants of investments in tax planning and quantifies the returns to those investments. We perform two main analyses. We begin by investigating the firm characteristics associated with the size of investments in tax planning. Since some baseline amount of planning is necessary to minimally understand and comply with.
