New Jersey Business Taxes and the Throwout Rule

Mark H. Levin, CPA

The throwout rule was enacted in the Business Tax Reform Act of 2002, effective for privilege periods beginning on or after January 1, 2002. Under the throwout rule, when apportioning income within and without New Jersey, receipts sourced to another state, the District of Columbia, a U.S. territory or possession, or a foreign country in which the taxpayer is not subject to tax on its income must be excluded from the denominator of the receipts factor. There is a special exemption relating to receipts that are included in the numerator of a foreign state's receipts factor by reason of that state's throwback rule. Those throwback receipts are not to be excluded from the denominator of New Jersey's receipts factor. Only one other state, West Virginia, utilizes a throwout rule, as compared with 28 states that use the throwback rule.