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Does your state have a throwback rule?

This week’s state tax map examines states that have a throwback rule in their corporate tax code. Throwback rules are not widely understood, but they have a notable impact on business location and investment decisions.

For purposes of corporate taxation, multistate businesses are required to apportion their income among the states in which they operate. Most apportionment formulas assign weighting among three factors–property, payroll, and sales–to determine the amount of income taxed by each state in which the business operates. The goal of apportionment is to prevent double taxation of corporate income, but there is wide variation among states in how apportionment formulas are designed. For example, some states weight the three factors equally, while others weight the sales factor more heavily or use it as the only factor.

Varying state corporate income tax practices sometimes result in businesses having what is known as “nowhere income,” or income that is not taxed by any state. States with throwback rules seek to counter this phenomenon by requiring 100 percent of profits be apportioned among states. As such, businesses with nowhere income are required to “throw” that income “back” into a state where it will be taxed, even though that income was not earned in that state.

Because two or more states can potentially stake claim to “nowhere income,” rules are needed to determine where that income should go, injecting another layer of complexity into already complicated state corporate tax structures. States with corporate income taxes are nearly evenly divided between those that have a throwback rule and those that do not. The map below shows throwback rules in 25 states and the District of Columbia.

Does Your State Have a Throwback Rule?

Source: Does your state have a throwback rule?

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Judy Vorndran can be reached at or 720.227.0093. Follow Judy on LinkedIn.

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