Complementary Approaches to Corporate Tax Reform: Throwback Rule and Combined Reporting

Back • Publication Date: March 22nd, 2011

Authors: Eric Mitzenmacher & Sarah Kopman-Fried

Downloads: Download #1

A “throwback rule” and “mandatory combined reporting” are two policies currently being considered by state policymakers. Their superficial similarities — both have to do with how Connecticut allocates the taxable income of multi-state businesses to the jurisdictions in which they operate — have caused some to treat them as alternative solutions. They are, however, not substitutes, but rather complements. Each addresses a separate problem in multi-state taxation. Accordingly, Connecticut should enact both as positive reforms to its procedural corporate tax policy. As this brief explains,


  • A “throwback rule” and “mandatory combined reporting” solve different problems in multi-state taxation. They are therefore complementary fixes meant to make Connecticut’s tax policy more equitable and less susceptible to tax avoidance strategies.
  • A “throwback rule” would improve tax equity by repatriating income back to Connecticut that otherwise could not be taxed by any jurisdiction. The tax advantage due to this “nowhere income” disproportionately benefits large multi-state companies and therefore works to the detriment of small, local Connecticut businesses.
  • “Mandatory combined reporting” would close a tax avoidance loophole. Multi-state businesses currently can shelter some of their income outside of the reach of Connecticut’s taxing authority by shifting profits to subsidiaries in states without a corporate income tax.