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New Jersey Supreme Court Catches a Throwout Case

The New Jersey Supreme Court granted leave to appeal in the Whirlpool Properties Inc., and Pfizer Inc. cases to determine whether the New Jersey “Throwout Rule” is facially unconstitutional.

The New Jersey Supreme Court granted leave to appeal in the Whirlpool Properties Inc., and Pfizer Inc. cases to determine whether the New Jersey “Throwout Rule” is facially unconstitutional. Whirlpool Properties, Inc. v. Div. of Taxation and Pfizer, Inc. v. Div. of Taxation, Dockets A-1180-08T2 and A-1182-08T2 (N.J. Super. Ct. App. Div., July 12, 2010) (leave to appeal granted Oct. 21, 2010). The New Jersey Appellate Division affirmed the New Jersey Tax Court’s decision in the consolidated decision holding that the Throwout Rule did not, on its face, violate the Due Process, Commerce, or Supremacy Clauses of the United States Constitution because the statute could operate constitutionally in some instances. 

The New Jersey Throwout Rule required taxpayers to exclude (or “throwout”) receipts from the denominator of their sales apportionment factor if the sales are assigned to a state where the taxpayer is not subject to tax. The Throwout Rule was effective for tax periods beginning on or after January 1, 2002, and before July 1, 2010. 

Many taxpayers have a vested interest in the Whirlpool and Pfizer cases because of pending appeals and potential refund claims. In addition, many taxpayers and practitioners are interested in the outcome of the case because the Throwout Rule represents the clearest example of extraterritorial taxation on state and local tax. Although New Jersey no longer imposes the Throwout Rule, other states, including Maine and West Virginia, continue to employ similar apportionment rules. If the taxpayers’ facial claims ultimately are unsuccessful, the taxpayers likely will pursue challenging the Throwout Rule on an “as applied” basis.

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