Introduction
Heard of the “throwback rule” and relieved Texas doesn’t have one? You’re partly right. Texas indeed does not impose a throwback rule, unlike California or New York—but there’s a catch for SaaS and digital businesses.
In this 2025 guide, we’ll break down what the throwback rule is, why Texas doesn’t adopt it, and where unapportioned receipts can still backfire.
What Is the Throwback Rule?
Under throwback rules, states tax sales of goods or services delivered outside the state if the customer’s state does not tax them. This prevents revenue from escaping all state taxation.
- States like CA, NY, IL use throwback
- TX does not
- But… your home state’s sourcing method still matters
Texas Tax Code & IRC References
- Texas Tax Code §171.106 – Apportionment via gross receipts
- Comptroller Rule 3.591(e) – Gross receipts sourced outside TX are excluded
- IRC §861–865 – Federal sourcing rules (context)
Why No Throwback in Texas?
Texas relies solely on market-based sourcing. If your customer is out-of-state:
- The sale is not sourced to Texas
- No throwback applies—even if the other state does not tax it
This benefits multi-state SaaS and eCommerce companies operating from TX.
The Catch: Other States May Apply Throwback to You
Even though Texas doesn’t throw revenue back to itself, other states might throw it back from Texas if:
- You have customers in their state
- You lack nexus in that state
- Their law requires throwback to your “home base” (i.e., Texas)
Example:
You sell SaaS to a customer in Nevada (no income tax).
- You’re based in TX (no throwback).
- But your California operations may be forced to throw that NV sale back into their apportionment.
Result: You’re taxed in another state—despite being Texas-based.
Step-by-Step: How Texas Founders Should Handle It
- Understand Your Multi-State Footprint
Review sales, billing, and customer locations across all states. - Use Market-Based Sourcing in Texas
Only include TX-based customer receipts. - File Accurate Texas Franchise Report
Use Form 05-158 or Webfile and exclude out-of-state sales. - Watch for Throwback Risk in Other States
States like CA, IL, and MA may claim those sales. - Work With a Tax Pro to Avoid Double Taxation
Multi-state apportionment needs precision.
Conclusion
Texas’s no-throwback rule gives you room to optimize—but don’t relax just yet. Other states can still tax revenue you thought was excluded.
If you’re growing beyond Texas, plan your apportionment and nexus carefully to avoid double taxation traps.
Call to Action
Multi-state sales but headquartered in Texas?
Book a tax consultation with Anshul Goyal, CPA, EA, FCA to:
- Optimize your TX franchise tax sourcing
- Avoid throwback exposure in other states
- Reduce audit risk through compliant reporting
No throwback rule doesn’t mean no tax risk. Get expert help today.
https://calendly.com/anshulcpa/
About Our CPA
Anshul Goyal, CPA, EA, FCA
Anshul brings 15+ years of U.S. and international tax experience. He specializes in helping online sellers, foreign founders, and U.S. residents with IRS and multi-state compliance. Known for his deep knowledge in Shopify and Amazon seller tax strategy, Anshul has helped hundreds of entrepreneurs minimize taxes and scale legally.
Disclaimer
This blog is for informational purposes only and does not constitute legal or tax advice. Please consult a qualified tax professional regarding your individual tax situation.
Top 5 High-Searched FAQs (2025)
1. What is the throwback rule?
A state tax rule that reassigns out-of-state sales to the home state if the destination doesn’t tax them.
2. Does Texas apply the throwback rule?
No. Texas uses market-based sourcing and excludes out-of-state sales.
3. Can other states apply throwback to my TX sales?
Yes. CA, IL, and others may tax sales not taxed in destination states.
4. How do I protect against throwback risk?
Understand where you have nexus and file correctly in each state.
5. Which form do I use for TX franchise tax?
Form 05-158 or the Texas Webfile system.