Generally, income from the sale of personal property is “sourced” to the residence of the seller. If the seller is a U.S. tax resident the source of the income is deemed to be the United States. On the other hand, if the seller is a nonresident, the income is generally foreign-sourced.
The Congressional policy behind this residence rule provides as follows:
Source rules for sales of personal property should reflect the location of the economic activity generating the income at issue or the place of utilization of the assets generating that income. In addition, source rules should operate clearly without the necessity for burdensome factual determinations, limit erosion of the U.S. tax base and, in connection with the foreign tax credit limitation, generally not treat as foreign income any income that foreign countries do not or should not tax.
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