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1 Jared Walczak, Throwback and Throwout Rules: A Primer 1 (2019)

handle is hein.taxfoundation/thwbck0001 and id is 1 raw text is: Throwback and Throwout Rules: A Primer Jared Walczak Senior Policy Analyst Key Findings The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, local, and global levels. We are a 501(c)(3) nonprofit organization. ©2019 Tax Foundation Distributed under Creative Commons CC BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org When corporate income is apportioned among states for tax purposes, it is possible for some income to be earned in states which lack jurisdiction to tax the corporation, generating what is known as nowhere income that is not taxed by any state. Throwback and throwout rules are designed to allow states from which sales originate to tax the income from those sales in cases when the destination state, which would normally do so, lacks jurisdiction to levy tax on a given company (most commonly due to threshold requirements imposed by federal law), producing this nowhere income. Twenty-two states and the District of Columbia impose throwout rules, under which sales of tangible property which are untaxable in the destination state are thrown back into the numerator of the origin state's sales factor. Three states impose throwout rules for sales of tangible property, under which nowhere income is subtracted from the denominator, while 22 states have adopted throwout rules for sales of intangible property. Unitary combined reporting, where a state treats all affiliated companies as part of a single group for tax purposes, adds complexity in throwback, and combined reporting states must adopt rules which determine whether they can capture nowhere income associated with a particular company if another member of its unitary group is taxable in the destination state. In some combinations, these combined reporting rules-known as Joyce and Finnigan rules-can yield double taxation, while in others they can leave some income still untaxed. Throwback rules can yield exceedingly high and often uncompetitive levels of taxation for some businesses, to the point that the outmigration they generate can more than offset any revenue gains from taxing nowhere income. FISCAL FACT No. 662 July 2019

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