We use establishment-level data to examine the relation between corporate taxes and default risk. Using a border discontinuity design, we document that higher corporate tax rates significantly increase default risk, particularly for geographically concentrated firms, with sizable spillovers across establishments. We further investigate \textit{how} taxes affect establishment-level default risk by exploiting the interest limitation rule introduced by the 2017 Tax Cuts and Jobs Act. Using a difference-in-differences design, we find that affected firms experience a decline in default risk. This occurs because the reduced tax advantage of debt induces firms to deleverage, thus reducing default risk through capital structure adjustments.