Apportionment of Royalty Income

Tax Administration Policy - Apportionment of Royalty Income

Royalties and residuals are considered to be business income under both the City of Portland Business License Tax Law and Multnomah County Business Income Tax Law. Royalties are payments made by one entity (the licensee or payer) to another entity (the licensor or payee) in exchange for the use of certain physical assets or intellectual or intangible property owned by the licensor. Situations in which royalty, residual, or license payments might be made include:

• Payments to the authors of books printed and distributed by publishing houses.
• Payments to recording artists, songwriters, music publishers, and recording companies, including for print rights and royalties.
• Payments to principal performers for movies or television programs after the initial use of the movie or TV program.
• Screenwriters and performers receive residual payments for their work.
• Artists license their artwork to others, rather than assigning or selling it outright, receive license or royalty payments.
• Fashion designers receive royalties for allowing the use of their names on clothing made by other companies.
• Mining companies pay royalties to landowners for the right to extract natural resources from their land.
• Patent holders receive royalties for the right to use the patented process, formula, design, etc.
• License payments to a software company for the use of their proprietary product.

Royalty, residual, or license income should be included in the numerator of the City and/or County apportionment fraction under certain circumstances:

1. Royalties related to real property are apportioned to the City / County if the real property is located in the City and/or County.
2. Royalties from tangible personal property are apportionable to the City and/or County:
   • If and to the extent that the property is utilized in the City/County, or
   • In their entirety if the taxpayer’s commercial domicile is in the City/County AND the taxpayer is not organized under the laws of or taxable in the jurisdiction in which the property is utilized.¹
3. Patent and copyright royalties are apportionable to the City / County if the patent or copyright is utilized by the licensee (payer) in the City/County, OR the patent or copyright is utilized by the licensee (payer) in a State in which the licensor (payee) is not taxable, AND the licensor’s commercial domicile is in the City/County.
   • A patent is considered to be utilized in the City/County to the extent that it is employed in production, fabrication, manufacturing, or other processing in the City/County, or to the extent that a patented product is produced in the City/County. If the basis of receipts from patent royalties does not permit apportionment to a State, or if the accounting procedures do not reflect the States of utilization, the patent is utilized in the State in which the licensor (payee) is commercially domiciled.
   • A copyright is utilized in the City/County to the extent that printing or other publication² originates here. If the basis of receipts from copyright royalties does not permit apportionment to a State, or if accounting procedures do not reflect the States of utilization, the copyright is utilized in the State in which the licensor (payee) is commercially domiciled.³

6/28/2011                                   Thomas Lannom
Date                                             Director

Adopted: 6/28/2011

¹ ORS 314.630.

² Publication is defined as: “…the distribution of copies or phonorecords of a work to the public by sale or other transfer of ownership, or by rental, lease, or lending. The offering to distribute copies or phonorecords to a group of persons for purposes of further distribution,
public performance, or public display constitutes publication.” 1976 Copyright Act.

³ ORS 314.645.