Throwback Rule

AAA

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.

INVESTOPEDIA EXPLAINS '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. Franchise Tax

    A tax levied at the state level against businesses and partnerships ...
  2. Corporate Tax

    A levy placed on the profit of a firm, with different rates used ...
  3. Finance

    The science that describes the management, creation and study ...
  4. Income Tax

    A tax that governments impose on financial income generated by ...
  5. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  6. Tax Liability

    The total amount of tax that an entity is legally obligated to ...
Related Articles
  1. How To Report A Tax Cheat
    Taxes

    How To Report A Tax Cheat

  2. Financial History: The Rise Of Modern ...
    Professionals

    Financial History: The Rise Of Modern ...

  3. What is the purpose of a
    Investing

    What is the purpose of a "repatriated ...

  4. How do you calculate retained earnings ...
    Fundamental Analysis

    How do you calculate retained earnings ...

Hot Definitions
  1. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  2. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  3. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  6. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
Trading Center