“Taking that ride to nowhere…We’ll take the ride,” say the lyrics to the former Talking Heads hit song. This sentiment is shared by corporations making sales in more than one state. This is because in some circumstances these corporations are able to reap “nowhere income,” which occurs when the corporation makes sales or shipments of tangible personal property to a destination state in which the receipts are not subject to tax.
To prevent “nowhere income,” some states have enacted a throwback rule, which requires in-state corporations to include such out-of-state sales in the numerator of their receipts factor. To compute the numerator of the receipts factor, taxpayers usually assign receipts from the sale of tangible personal property to the destination state. However, under a throwback rule, such receipts are assigned to the state from which the goods were shipped if the taxpayer is not taxable in the destination state.
Twenty-two states indicated that they have a throwback rule in Bloomberg BNA’s 2016 Survey of State Tax Departments. One gray area of the states’ application of their throwback rules involves the question of which jurisdiction’s nexus laws the throwback state uses for determining whether sale is taxable in the other state. Twelve states indicated on the survey that they apply the home state’s nexus laws and seven states said they apply the destination state’s laws instead.
Also, a corporation may be required to show that it filed a return and paid tax to prove that it is taxable in the destination state. Fourteen states indicated that a corporation must file a return and pay tax in the destination state in order to prevent application of a throwback rule.
The good news for corporations making sales into more than one state is that some states do not have a throwback rule. This means that they may be able to structure their activities in a manner that would result in less than 100 percent of their income being subjected to tax.
Continue the discussion on LinkedIn: What are some of the other gray areas involving throwback rules?
For more information about state tax issues, sign up for a free trial on Bloomberg BNA’s Premier State Tax Library.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)