The Medical Device Excise Tax (MDET) enacted a 2.3 percent tax on domestic sales of certain medical devices. Medical device firms suggested the tax would reduce profitability, leading to cuts in employees, research and development, and capital expenditures. However, we find that medical device firms engaged in more income tax avoidance in response to the MDET. Furthermore, medical device firms with high income tax avoidance made no significant cuts to investment spending or employees, whereas firms with low income tax avoidance significantly decreased investment spending and employees. Our findings suggest that some medical device firms used income tax avoidance as a substitute for reducing investment spending. Our results serve to inform both researchers and policymakers regarding the interplay between non-income taxes and income tax avoidance.
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Research Article|
October 04 2022
How do Firms Respond to a Non-Income Tax? The Interplay between Non-Income Taxes and Income Tax Avoidance
Yangmei Wang
;
Yangmei Wang
Texas State University
Assistant Professor
Accounting
601 University Dr.
UNITED STATES
San Marcos
TX
78666
1-201-895-9228
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Tiankai Wang
Tiankai Wang
Texas State University
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Received:
April 28 2021
Revision Received:
January 20 2022
Revision Received:
April 29 2022
Revision Received:
August 10 2022
Revision Received:
September 13 2022
Accepted:
October 04 2022
Online Issn: 1558-7975
Print Issn: 0888-7993
2022
Accounting Horizons (2022)
Citation
G. Ryan Huston, Yangmei Wang, Tiankai Wang; How do Firms Respond to a Non-Income Tax? The Interplay between Non-Income Taxes and Income Tax Avoidance. Accounting Horizons 2022; https://doi.org/10.2308/HORIZONS-2021-069
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