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Tag Archive for Internet Sales Tax Law

The Export Disc Corporation (IC-DISC): Computer Software And Internet Sales And Licenses – Part 8 (Final)

Lease and Rental Source of Income

Under the Software Regulations, income derived from the rental of a copyrighted article is sourced under Section 861(a)(4) and 862(a)(4).  As a general rule, rents and royalties are sourced to the place where the leased or licensed property is located, or where the lessee or licensee uses, or is entitled to use the property.

Leased property is used where it is physically located at the time of its use by the lessee. Therefore a computer program copy that is “rented” under a limited duration license should be considered to be used at the place where the computer that hosts the program is physically located while the lessee uses the program. If the copy resides on the lessee’s Read more

The Export Disc Corporation (IC-DISC): Computer Software And Internet Sales And Licenses – Part 7

Partial Transfer of a Copyright Article: A Lease

If less than all of the benefits and burdens associated with a copyrighted article have passed to the transferee, the Software Regulations treat the transaction as a lease. Copyright articles can be leased as well as sold. Computer programs do not involve the risk of physical deterioration or physical destruction but they do have the risk of technological obsolescence. If this risk is assumed by the transferee, generally through a transaction in which the transferee makes a single payment in return for the right to use the program copy in perpetuity, then the transferee has assumed the risk of obsolescence and should be treated as the owner of the program copy. Read more

The Export Disc Corporation (IC-DISC): Computer Software And Internet Sales And Licenses – Part 6

Application of the Title Passage Rule

As described in Part 5, the source of income generated by the sale or exchange of a copyrighted article often depends upon whether the sale took place within or without the United States. The place of sale is determined under the title passage rule. The Software Regulations recognizes that typical license agreements do not refer to a transfer of property and an electronic transfer is generally not accompanied by the usual indicia of the transfer of title.

There are important categories of copyrighted article transfers for DISC purposes: (i) a transfer of tangible property, such as a tangible medium in which the copyrighted article Read more

The Export Disc Corporation (IC-DISC): Computer Software And Internet Sales And Licenses – Part 4

The Source of Income Analysis

Once it is determined that a computer program is a copyright article and thus “export property” for DISC purposes; then the issue is to determine whether the Software Program is being sold for use, consumption of disposition outside of the U.S. This analysis depends upon the “source of income” rules.

Generally under the current rules, the source of income from sales of property depends to varying extents upon both the type of property and whether the property sold or leased is “inventory property”.

Income from the lease of a copyright article must also fit this definition of non U.S. source Read more

Export Disc Corporation (IC-DISC): Computer Software And Internet Sales And Licenses – Part 3

Copyright Rights

The regulations distinguish between transfers of copyright rights and transfers of copyrighted articles based on the type of rights transferred to the transferee. The transfer is classified as a transfer of a copyright if, as a result of a transaction, a person acquires any one or more of the following rights:

1. the right to make copies of the computer program for purposes of distribution to the public by sale or other transfer of ownership, or by rental, lease or lending;
2. the right to prepare derivative computer programs based on the copyrighted computer program; Read more

The Export Disc Corporation (IC-DISC): Computer Software And Internet Sales And Licenses – Part 2

The Export Property Analysis

Export property is defined to mean, in general, property that is:

1. Manufactured, produced, grown or extracted in the United States by a person other than a DISC,

2. Held primarily for sale, lease, or rental, in the ordinary course of trade or business, by, or to, a DISC, for direct use, consumption, or disposition outside the United States and

3. Not more than 50 percent of the fair market value of which is attributable to articles imported into the United States. Read more

The Export Disc Corporation (IC-DISC): Computer Software And Internet Sales And Licenses – Part 1

The Interest Charge Domestic International Sales Corporation

The IC-DISC has been approved as an acceptable tax planning entity for the export of American produced computer software and programs as early as 1985.  In 1998, a very detailed set of Treasury Regulations were issued that have added certainty to this area of the law.

For purposes of determining the applicability of the DISC to computer software exports, two key analyses are often required.  First, (1) is the software “export property” for DISC purposes and (2) is the software product’s source of income “from without the U.S.”?  Is the product for use, consumption or sale without the U.S.? Read more

How You As A Tax Professional Can Help Influence The Internet Sales Tax Law

As a Tax Professional, you have the opportunity to influence the Internet Sales Tax Law. While Congress is on track to pass a nationwide Internet Sales Tax, you can make a significant contribution to improve it before it becomes law! The Open Government Foundation has designed an innovative platform for making line-by-line suggestions for improvements in the internet sales tax law.

TechCrunch has created a version of the “Project Madison” crowdsourcing legislative platform that enables readers to add, delete and amend specific passages in the upcoming tax law. Suggestions by tax professionals will receive the attention of Congressional Staffers. TaxConnections in support of TechCrunch needs your help to make a difference in this law – NOW!

Senate Bill S.743, the “Marketplace Fairness Act of 2013,” passed the Senate with overwhelming support and is on to the House of Representatives. TechCrunch launched a news civic channel to source and promote the most insightful ideas to pass on to government. This is a real opportunity to improve the Internet Sales Tax Laws while it has left the Senate and is on its way to the House of Representatives.

Here is exactly what you need to do: Read more