Massachusetts Adopts New Rules for Sourcing Royalties and Licensing Fees

Schadewald, Michael
May 2007
Journal of State Taxation;May/Jun2007, Vol. 25 Issue 4, p9
Academic Journal
On October 6, 2006, the Massachusetts Department of Revenue amended its rules for apportioning income to Massachusetts and provided guidance for determining whether royalties and licensing fees are attributable to Massachusetts. Consistent with UDITPA §17, for purposes of computing the Massachusetts sales factor, sales other than sales of tangible personal property are attributed to Massachusetts if: (a) the income-producing activity is performed in Massachusetts, or (b) the income-producing activity is performed both in and outside Massachusetts, and a greater proportion of the income-producing activity is performed in Massachusetts than in any other state, based on costs of performance. With respect to gross receipts in the form of royalties or licensing fees, the income-producing activity is considered to be performed in Massachusetts to the extent the intangible property is used by the licensee in Massachusetts. For purposes of determining the place of use of intangible property, the new regulations distinguish between royalties and licensing fees derived from ‘marketing intangibles’ as opposed to ‘non-marketing intangibles.’ Intangible property is a marketing intangible if the license is granted for the right to use the property in connection with the sale, lease, license or other marketing of goods or services. Examples include the license of a service mark, trademark or trade name. On the other hand, intangible property is a non-marketing intangible if the license is granted for the right to use the property other than in connection with the sale, lease, license or other marketing of goods or services. Examples include the license of a patent, a copyright or trade secrets to be used in a manufacturing process. Special rules apply to software transactions.


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