Effect of Franchise Taxes upon Corporate Location

Abstract

Much difference of opinion exists concerning the weight given the taxation factor by incorporators in choosing the state of incorporation for businesses. The issue is hotly debated at times and two contradictory theories are advanced.' According to the first of these, such factors as accessibility to raw materials, fuel and power, nearness to market, and an abundance of cheap labor and capital are no longer as important as they once were. Adherents of this view call attention to the fact that geographical wage differentials are fast being eliminated by labor union activity, while the benefits of a location close to raw materials or close to one's markets are being reduced by cheaper transportation. Geographical tax differentials are thus assuming increasing importance and soon will be the only remaining important location factor. The other group maintain that a small gain in efficiency of operation due to a favorable location will more than offset any disadvantage of a location arising from unduly heavy taxation. The discussion which follows will treat this problem.