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California Adoption of Economic Nexus Principles Negates the Throwback Rule for Certain Tax Payers


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In this article, Bart Baer and Matthew Johnson, of Deloitte Tax LLP, discuss a recent California Chief Counsel Ruling that applies the principles of the state's new economic nexus standards, as well as its Finnigan principles and market-based sourcing, to determine when the throwback of sales of tangible personal property is required. Although these new economic nexus standards are effective for tax years beginning on or after Jan. 1, 2011, the authors argue that it is inconsistent to apply different constitutionally permissible criteria in years prior to 2011 for throwback purposes. As a result, the authors reason that the analysis in the Chief Counsel Ruling potentially provides the foundation for certain California taxpayers to seek relief from throwback sales on a refund basis while also serving as further information to be considered by certain taxpayers in other states that have similar rules for throwback sales.

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