Knowing what should not be regarded as corporate welfare may be even more important for a policy discussion than knowing what should be. Some tax provisions, though often viewed as corporate welfare, are often consistent with economically efficient tax policy and should not be viewed as welfare.
Some sales or property tax exemptions of certain goods or services and some broad-based income tax provisions are sometimes viewed as subsidies. Take sales tax exemptions for business inputs as an example. Taxing raw materials that go into a manufacturing process is a form of double taxation. If each stage of production of a good were taxed the same as the final purchase of that good, taxes would be charged on taxes, distorting the true costs of production and efficient market prices. While it may seem unfair that a certain type of good or service is exempt from taxation for a business when it is taxable to an individual, this does not automatically make the exemption a subsidy.
Another example of good tax policy sometimes mistaken for a subsidy is the ability of a company to more quickly deduct the cost of its investments. In a perfect world — one in which the tax code did not distort market decisions — businesses would be allowed to deduct their capital purchases immediately in the same tax year they were made. However, current law requires investment costs to be netted out of income over a period of years (i.e., depreciate them). This can be too long a period to fully expense investments once inflation is taken into account.
Some states and the federal government have accelerated the timeframe within which businesses can depreciate. Some small businesses today can even instantly write-off (i.e., expense) all the capital purchases made in a single tax year below a certain value threshold. Compared to the status quo, this might seem to an uninformed observer like a subsidy to a business since accelerated depreciation and instant expensing result in a lower tax bill for a company relative to the status quo baseline. Actually, it is just good tax policy and corrects a flaw in the tax code.
Some tax disparities may exist as a natural consequence of the evolution of a marketplace or industry, not because of legislative activity or policy changes. Amazon, Wayfair and other internet-based companies, like catalog companies before them, have benefited from not having to collect sales taxes from their customers to then be remitted to their customers’ respective states.[*] However, this was not corporate welfare. It might have been unfair from the perspective of other retailers that did not operate across state lines and sell over the internet. It was arguably economically inefficient and distortionary. Amazon and Wayfair’s advantage, though, was not a result of concerted government action intended to provide them special treatment. It was accidental, and even though these internet-based companies actively sought to keep that advantage, federalism complications are such that legislative inactivity does not amount to action that can be considered corporate welfare.
[*] Internet purchases have always been subject to tax, however. Residents are required to send their state treasuries “use” taxes on goods used in the state but purchased elsewhere. Compliance is limited and state treasuries are reluctant to enforce the provisions.