Who benefits from the tax advantages of organizational form choice?

Michael P. Donohoe, Petro Lisowsky, Michael A. Mayberry

Research output: Contribution to journalReview articlepeer-review


We investigate whether and the extent to which four stakeholders of a firm — customers, suppliers, employees, and owners — benefit from the savings under Subchapter S relative to Subchapter C. Using a balanced sample of U.S. commercial banks from 2001–2005, we find that S corporation banks pay 2 percent more in wages and 38 percent more in dividends than C corporation banks, but pay lower interest rates on deposits and charge similar rates on loans. Further, after the Jobs and Growth Tax Relief and Reconciliation Act of 2003 attenuated the relative tax advantage of Subchapter S, we find that S corporation banks increased wages and dividends to a lesser extent than C corporation banks. These results suggest that employees and owners, but not suppliers or customers, benefit from the tax advantages of the Subchapter S organizational form. Overall, our study provides economic insight into which parties ultimately bear — and do not bear — the incidence of corporate taxation.

Original languageEnglish (US)
Pages (from-to)945-998
Number of pages54
JournalNational Tax Journal
Issue number4
StatePublished - Dec 2015


  • Banks
  • C corporation
  • Organizational form
  • S corporation
  • Tax incidence

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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