DEFINITION of 'Throwback Rule'

A measure states can adopt to ensure corporations pay state taxes on 100% of their profits. Traditional state apportionment formulas base state corporate taxes on a formula that considers where a corporation's property, payroll and sales are located. These formulas result in "nowhere income," or income on which a corporation does not pay tax in any state. The throwback rule is meant to eliminate this tax loophole.

BREAKING DOWN 'Throwback Rule'

Critics consider traditional apportionment formulas unfair to small businesses that have profits that are 100% taxable because all of their business activities are located in a single state. These businesses end up paying taxes on a greater percentage of their profits than some multi-state corporations do. Critics also think that multi-state corporations with "nowhere income" are burdening state residents by not paying for their fair share of public services, and that the corporate income tax has declined significantly as a source of state revenue as a result of the "nowhere income" loophole.

RELATED TERMS
  1. Corporate Tax

    A levy placed on the profit of a firm, with different rates used ...
  2. Tax Rate

    The percentage at which an individual or corporation is taxed. ...
  3. Federal Income Tax

    A tax levied by the United States Internal Revenue Service (IRS) ...
  4. Taxes

    An involuntary fee levied on corporations or individuals that ...
  5. Income Tax

    A tax that governments impose on financial income generated by ...
  6. IRS Publication 542

    A document published by the Internal Revenue Service (IRS) that ...
Related Articles
  1. Taxes

    Explaining Corporate Tax

    A corporate tax is a tax levied on the profits a corporation generates.
  2. Taxes

    Taxes in New York for Small Business: The Basics

    Learn how small businesses are taxed in New York, and understand how tax rates vary based on whether the business is an S corporation, LLC or partnership.
  3. Taxes

    Taxes in California for Small Business: The Basics

    Understand the tax implications of running a small business in California, and learn which state taxes apply based on business type.
  4. Taxes

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
  5. Taxes

    9 States Where You'll Pay the Most in Taxes

    Which state you live in can mean thousands of dollars saved or lost in taxes each year. Here's a list of states to avoid when it comes to tax rates.
  6. Taxes

    Taxes in Florida for Small Businesses: The Basics

    Learn why Florida's tax laws make it an attractive place to start a small business, and understand the types of taxes a small business owner must pay there.
  7. Taxes

    Is Multinational Tax Avoidance at an End?

    Are governments doing enough to end corporate tax avoidance?
  8. Taxes

    The Impact Of U.S. Corporate Taxation On Investment Decisions And CFC Transfer Pricing

    To avoid taxation, businesses do careful tax planning, taking into consideration more than one country's taxation system.
  9. Financial Advisor

    Countries With The Highest & Lowest Corporate Tax Rates (AAPL, IBM)

    The United States is No. 2 in the world for its high corporate tax rate. There are ways around paying it, and many nations with lower rates are worse off.
  10. Taxes

    Understanding Taxes

    Taxes are mandatory fees that individuals and corporations must pay to their governments.
RELATED FAQS
  1. What are the best and worst states to pay taxes in?

    Explore and compare the wide variations that exist in the overall tax burden imposed by different states, including which ... Read Answer >>
  2. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  3. How does the effective tax rate for an individual differ from that of a corporation?

    Read about the effective tax rate for individuals when compared with the effective tax rate for corporations, including how ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center