Throwback Rule

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. Tax Rate

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

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

    An involuntary fee levied on corporations or individuals that ...
  4. Corporate Tax

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

    The average rate at which an individual or corporation is taxed. ...
  6. IRS Publication 542

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

    Explaining Corporate Tax

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

    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. Entrepreneurship

    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. Investing News

    Is Multinational Tax Avoidance at an End?

    Are governments doing enough to end corporate tax avoidance?
  6. Entrepreneurship

    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

    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.
  8. Economics

    What is Profit Before Tax?

    Profit before tax measures a company’s profits before it pays corporate income tax.
  9. Entrepreneurship

    Corporate Inversion: How It Works

    Large corporations are making all kinds of moves to decrease expenses and increase profits in an increasingly competitive global market.
  10. Taxes

    Explaining Double Taxation

    Double taxation refers to income taxes being imposed twice on the same source of earned income.
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 >>
  4. What is the income breakdown for the effective tax rate?

    Read about the effective tax rate, how the marginal income tax brackets affect it and how the denominator in its formula ... Read Answer >>
  5. Does location matter for taxes when calculating gross sales?

    Learn more about gross sales taxes and how merchants are impacted by them. Find out if different business locations are impacted ... Read Answer >>
  6. What do I do with out of state property and income reporting?

    If I own a single family home that I rent out in another state and receive income for, does that need ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center