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Royalties Are Excluded From Total-Sales Calculations Under the SBTA

JDSupra (04/23/2012) Nicole Mazzocco

Under the Single Business Tax Act, royalties from the licensing of trademarks, trade names, and know-how should not be included in total-sales calculations, affirmed the Court of Appeals in Kelly Services Inc. v. Department of the Treasury. The court indicated that royalties did not fit the definition of “sales” spelled out in previous cases and determined that royalties do not constitute “gross receipts,” which involve both sales and rental or lease receipts. Moreover, it determined that royalties do not involve a transfer of title because licenses are intangible property and that the law would not cover royalties even if they met the definition of “sale” because licensed trademarks, trade names, and know-how are not applicable property under SBTA since they do not meet the definitions of “stock in trade,” “property of a kind that would be properly included in the inventory of the taxpayer,” or “property held by the taxpayer primarily for sale to customers in the ordinary course of trade or business.”