New Jersey Throwout: Legislature Mulls Throwing It Out!


Do not give up your “throwout” challenges! Not only is the New Jersey throwout provision being challenged in the courts (as being unconstitutional and violating aspects of New Jersey law too numerous to count), it also may, and should, be eliminated by the Legislature’s own hand.[1]

Assembly Bill A2722 was recently proposed by New Jersey Assemblyman Joseph Vas to repeal the New Jersey throwout. Yes, read it again – a bill has been proposed in New Jersey to repeal throwout.

The Statement to the bill explains that:

This bill eliminates the so-called “throwout” provision of the corporation business tax.

Under the apportionment formula that is currently used for determining the portion of a corporation’s entire net income that is taxable by New Jersey, the sales fraction is the most heavily weighted factor. Some of those sales are made in states where the corporation is not subject to tax. Currently, a provision of the allocation formula omits these sales from the denominator of the sales fraction. This “throwout” of sales assigned to states where the corporation is not subject to tax increases the sales fraction, which increases the portion of the entire net income of a corporation allocated to New Jersey.

This bill eliminates that throwout provision, and also eliminates a corresponding provision that currently limits the increase in tax liability related to the throwout rule for affiliated groups of corporations.[2]

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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