Taxes Matter XVII

Taxes Matter XVII

February 3, 2009 Posted by J. Scott Moody - No Comments

Recently Governor Baldacci was sent a letter from the Council on State Taxation (COST) regarding a bit of arcane tax law with large consequences for Maine’s economy.  The issue deals with “Throwback” and “Throwout” laws buried in the Governor’s recent budget proposal.  COST states that:

“Generally speaking, throwout laws require a company, when calculating its tax in a state, to exclude from the numerator and denominator of the apportionment formula income earned in another state if that other state chooses not to tax that income or is prohibited from taxing that income by the U.S. Constitution or by federal law.”

Adopting the throwout rule would again put Maine at the forefront of bad tax policy:

“Until recently, only two states had throwout laws: New Jersey and West Virginia.  In December 2008, New Jersey Governor Corzine signed legislation which repealed that State’s throwout rule, acknowledging that throwout is bad for business and that New Jersey needs to do everything it can to bolster the State’s economy.  With New Jersey’s recent repeal, West Virginia will be the sole state with a throwout rule.”

Perhaps that is one reason why West Virginia has an even smaller private sector than Maine’s?

COST’s conclusion:

“Throwout laws represent poor tax policy, discourge investment, and are constitutionally suspect.  COST urges you to rescind the budget provision imposing thowout.  Furthermore, COST encourages you to take a meaningful step toward improving Maine’s business tax climate by repealing the current throwback law.”