Throwback Rule

The “throwback rule” tells us how old a pic or other memory has to be before it can qualify for use on #ThrowbackThursday. Eh, okay. You got us. Everyone knows that everything in the past qualifies for #tbt usage, from our 1990s prom pics to our snap of yesterday’s burrito.

Speaking of yesterday’s burrito, the “throwback rule” actually has to do with the taxes our fine burrito purveyor has to pay on his company’s profits. What do we mean? We’re about to explain, but before we do, we feel compelled to point out that tax laws can get complicated. Each state handles its corporate tax apportionment in its own way, which means that the throwback rule might play out differently in one state than it does in another.

Boyd’s Burrito Barn is located in Alamogordo, New Mexico. As one might expect, this means most of Boyd’s profits are made in New Mexico. But last year, Boyd’s Burrito Barn sold a ton of merchandise and special sauces online to folks living in Kansas. Under traditional state tax laws, Boyd’s would only have to pay corporate taxes on the profits earned in New Mexico, since the company does not have a physical location or presence in Kansas.

That means the money earned in Kansas becomes “nowhere income.” It isn’t taxed at all. And that makes some folks very unhappy. The “throwback rule” attempts to close this little loophole by allowing one state to “throw back” a company’s income to the state in which it’s physically located. So, in our example, Kansas would “throw back” Boyd’s sales made in its state to New Mexico, and then New Mexico would tax the company accordingly. It’s one way to make sure multistate corporations are paying their fair tax share, even if they don’t have physical locations in every state in which they do business.