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8. What are "throwback sales" and how do they affect the Michigan sales factor?

Throwback sales are sales of tangible personal property made to a purchaser in another state or country, which originate in Michigan, and are “thrown back” into the numerator as a Michigan sale in the computation of the Michigan sales factor because the income from the business is not taxable by the other state or country.

For purposes of allocation and apportionment of income from business activity under Part 1, Chapter 3 of the Michigan Income Tax Act (individual income tax), a taxpayer is taxable in another state if:

(1) In that state the taxpayer is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business or a corporate stock tax; or

(2) That state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state does or does not.

Generally, to exclude sales originating in Michigan and made to purchaser in another state or country from the numerator, the business must have a physical presence in the other state (nexus) and the activity in that state must be beyond mere solicitation of sales.