IDAPA 35.01.01.549 — SALES FACTOR: LICENSE OR LEASE OR INTANGIBLE PROPERTY (RULE 549)

IDAHO ADMINISTRATIVE CODE
IDAPA 35.01.01
Idaho State Tax Commission
Income Tax Administrative Rules
Section 549
Page 80
Section 63-3027(13)(d)(i)
01.
General Rules.
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a.
The receipts from the license of intangible property are in this state if and to the extent the
intangible is used in this state. In general, the term "use" is construed to refer to the location of the taxpayer's market
for the use of the intangible property that is being licensed and is not to be construed to refer to the location of the
property or payroll of the taxpayer. The rules that apply to determine the location of the use of intangible property in
the context of several specific types of licensing transactions are set forth at Subsections 549.02 through 05 of this
rule. For purposes of the rules set forth in this Rule 549, a lease of intangible property is to be treated the same as a
license of intangible property.
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b.
In general, a license of intangible property that conveys all substantial rights in that property is
treated as a sale of intangible property for purposes of Section 63-3027, Idaho Code, and these rules. See Rule 550.
Note, however, that for purposes of this Rule 549 and Rule 550, a sale or exchange of intangible property is treated as
a license of that property where the receipts from the sale or exchange derive from payments that are contingent on
the productivity, use or disposition of the property.
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c.
Intangible property licensed as part of the sale or lease of tangible property is treated under Section
63-3027, Idaho Code, and these rules as the sale or lease of tangible property.
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d.
Nothing in this Rule 548 shall be construed to allow or require inclusion of receipts in the sales
factor that are not included in the definition of "receipts" pursuant to Section 63-3027(1)(i), Idaho Code, or related
rules.
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02.
License of a Marketing Intangible. Where a license is granted for the right to use intangible
property in connection with the sale, lease, license, or other marketing of goods, services, or other items (i.e., a
marketing intangible) to a consumer, the royalties or other licensing fees paid by the licensee for that marketing
intangible are assigned to this state to the extent that those fees are attributable to the sale or other provision of goods,
services, or other items purchased or otherwise acquired by consumers or other ultimate customers in this state.
Examples of a license of a marketing intangible include, without limitation, the license of a service mark, trademark,
or trade name; certain copyrights; the license of a film, television or multimedia production or event for commercial
distribution; and a franchise agreement. In each of these instances the license of the marketing intangible is intended
to promote consumer sales. In the case of the license of a marketing intangible, where a taxpayer has actual evidence
of the amount or proportion of its receipts that is attributable to this state, it shall assign that amount or proportion to
this state. In the absence of actual evidence of the amount or proportion of the licensee's receipts that are derived from
this state consumers, the portion of the licensing fee to be assigned to this state must be reasonably approximated by
multiplying the total fee by a percentage that reflects the ratio of the this state population in the specific geographic
area in which the licensee makes material use of the intangible property to regularly market its goods, services or
other items relative to the total population in that area. If the license of a marketing intangible is for the right to use
the intangible property in connection with sales or other transfers at wholesale rather than directly to retail customers,
the portion of the licensing fee to be assigned to this state must be reasonably approximated by multiplying the total
fee by a percentage that reflects the ratio of the this state population in the specific geographic area in which the
licensee's goods, services, or other items are ultimately and materially marketed using the intangible property relative
to the total population of that area. Unless the taxpayer demonstrates that the marketing intangible is materially used
in the marketing of items outside the United States, the fees from licensing that marketing intangible will be
presumed to be derived from within the United States.
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03.
License of a Production Intangible. If a license is granted for the right to use intangible property
other than in connection with the sale, lease, license, or other marketing of goods, services, or other items, and the
license is to be used in a production capacity (a "production intangible"), the licensing fees paid by the licensee for
that right are assigned to this state to the extent that the use for which the fees are paid takes place in this state.
Examples of a license of a production intangible include, without limitation, the license of a patent, a copyright, or
trade secrets to be used in a manufacturing process, where the value of the intangible lies predominately in its use in
that process. In the case of a license of a production intangible to a party other than a related party where the location
of actual use is unknown, it is presumed that the use of the intangible property takes place in the state of the licensee's
commercial domicile (where the licensee is a business) or the licensee's state of primary residence (where the
IDAHO ADMINISTRATIVE CODE
IDAPA 35.01.01
Idaho State Tax Commission
Income Tax Administrative Rules
Section 550
Page 81
licensee is an individual). If the Tax Commission can reasonably establish that the actual use of intangible property
pursuant to a license of a production intangible takes place in part in this state, it is presumed that the entire use is in
this state except to the extent that the taxpayer can demonstrate that the actual location of a portion of the use takes
place outside this state. In the case of a license of a production intangible to a related party, the taxpayer must assign
the receipts to where the intangible property is actually used.
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04.
License of a Mixed Intangible. If a license of intangible property includes both a license of a
marketing intangible and a license of a production intangible (a "mixed intangible") and the fees to be paid in each
instance are separately and reasonably stated in the licensing contract, the Tax Commission will accept that separate
statement for purposes of Section 63-3027, Idaho Code, and these rules. If a license of intangible property includes
both a license of a marketing intangible and a license of a production intangible and the fees to be paid in each
instance are not separately and reasonably stated in the contract, it is presumed that the licensing fees are paid entirely
for the license of the marketing intangible except to the extent that the taxpayer or the [tax administrator] can
reasonably establish otherwise.
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05.
License of Intangible Property where Substance of Transaction Resembles a Sale of Goods or
Services.
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a.
In general. In some cases, the license of intangible property will resemble the sale of an
electronically-delivered good or service rather than the license of a marketing intangible or a production intangible.
In these cases, the receipts from the licensing transaction are assigned by applying the provisions set forth in
Subsection 548.03.b.ii. and.iii., as if the transaction were a service delivered to an individual or business customer or
delivered electronically through an individual or business customer, as applicable. Examples of transactions to be
assigned under this Subsection 549.05 include, without limitation, the license of database access, the license of access
to information, the license of digital goods (see Rule 551.02), and the license of certain software (e.g., where the
transaction is not the license of pre-written software that is treated as the sale of tangible personal property, see Rule
551.01.
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b.
Sublicenses. Pursuant to Paragraph 549.05.a. above, the provisions of Rule 548.03.b.iii. may apply
where a taxpayer licenses intangible property to a customer that in turn sublicenses the intangible property to end
users as if the transaction were a service delivered electronically through a customer to end users. In particular, the
rules set forth in Rule 548.03.b.iii. that apply to services delivered electronically to a customer for purposes of resale
and subsequent electronic delivery in substantially identical form to end users or other recipients may also apply with
respect to licenses of intangible property for purposes of sublicense to end users. For this purpose, the intangible
property sublicensed to an end user shall not fail to be substantially identical to the property that was licensed to the
sublicensor merely because the sublicense transfers a reduced bundle of rights with respect to that property (e.g.,
because the sublicensee's rights are limited to its own use of the property and do not include the ability to grant a
further sublicense), or because that property is bundled with additional services or items of property.
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06.
Examples. Available at Income Tax Rules Examples.
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