§ 6-3-2-21.7 — Exemption for certain income derived from patents

Indiana § 6-3-2-21.7

• Jurisdiction: Indiana
• Art. 3: STATE INCOME TAXES
• Ch. 2: Imposition of Tax and Deductions

Text

7. (a) This section applies to a qualified patent
issued to a taxpayer after December 31, 2007.
(b) As used in this section, "invention" has the meaning set forth in
35 U.S.C. 100(a).
(c) As used in this section, "qualified patent" means:
(1) a utility patent issued under 35 U.S.C. 101; or
(2) a plant patent issued under 35 U.S.C. 161;
after December 31, 2007, for an invention resulting from a
development process conducted in Indiana. The term does not include
a design patent issued under 35 U.S.C. 171.
(d) As used in this section, "qualified taxpayer" means a taxpayer
that on the effective filing date of the claimed invention:
(1) is:
(A) an individual, if the number of employees of the individual,
including affiliates as specified in 13 CFR 121.103, does not
exceed five hundred (500) persons;
(B) a corporation, if the number of employees of the
corporation, including affiliates as specified in 13 CFR
121.103, does not exceed five hundred (500) persons; or
(C) a nonprofit organization or nonprofit corporation as
specified in:
(i) 37 CFR 1.27(a)(3)(ii)(A) or 37 CFR 1.27(a)(3)(ii)(B); or
(ii) IC 23-17; and
(2) is domiciled in Indiana.
For purposes of subdivision (1)(A), an individual shall not be
considered to meet the requirements under subdivision (1)(A) as a
result of the individual's interest in a partnership, S corporation, trust,
estate, or other entity. For purposes of subdivision (1)(B), a corporation
includes a corporation described in section 2.8(2) of this chapter.
(e) Subject to subsections (g) and (h), in determining adjusted gross
income or taxable income under IC 6-3-1-3.5 or IC 6-5.5-1-2, a
qualified taxpayer is entitled to an exemption from taxation under IC 6-3-1 through IC 6-3-7 for the following:
(1) Licensing fees or other income received for the use of a
qualified patent.
(2) Royalties received for the infringement of a qualified patent.
(3) Receipts from the sale of a qualified patent.
(4) Subject to subsection (f), income from the taxpayer's own use
of the taxpayer's qualified patent to produce the claimed
invention.
(f) The exemption provided by subsection (e)(4) may not exceed the
fair market value of the licensing fees or other income that would be
received by allowing use of the qualified taxpayer's qualified patent by
someone other than the taxpayer. The fair market value referred to in
this subsection must be determined in each taxable year in which the
qualified taxpayer claims an exemption under subsection (e)(4).
(g) The total amount of exemptions claimed under this section by a
qualified taxpayer in a taxable year may not exceed five million dollars
($5,000,000).
(h) A taxpayer may not claim an exemption under this section with
respect to a particular qualified patent for more than ten (10) taxable
years. Subject to the provisions of this section, the following amount of
the income, royalties, or receipts described in subsection (e) from a
particular qualified patent is exempt:
(1) Fifty percent (50%) for each of the first five (5) taxable years
in which the exemption is claimed for the qualified patent.
(2) Forty percent (40%) for the sixth taxable year in which the
exemption is claimed for the qualified patent.
(3) Thirty percent (30%) for the seventh taxable year in which the
exemption is claimed for the qualified patent.
(4) Twenty percent (20%) for the eighth taxable year in which the
exemption is claimed for the qualified patent.
(5) Ten percent (10%) each year for the ninth and tenth taxable
year in which the exemption is claimed for the qualified patent.
(6) No exemption under this section for the particular qualified
patent after the eleventh taxable year in which the exemption is
claimed for the qualified patent.
(i) For purposes of subsection (h):
(1) a taxpayer is not required to claim the exemption under this
section in the first year after which the patent was issued;
(2) the years in which the exemption under this section is claimed
are not required to be consecutive taxable years;
(3) if a qualified taxpayer claims an exemption under this section
on the taxpayer's return for a taxable year, the taxpayer may not
file an amended return to reverse the claimed exemption unless
the correct amount of the claimed exemption would have been
zero (0);
(4) if a qualified taxpayer does not claim an exemption under this
section on the taxpayer's return for a taxable year, the taxpayer
may not file an amended return to claim an exemption; and
(5) if a qualified taxpayer files returns claiming an exemption
under this section with regard to a particular qualified patent for
more than ten (10) years, the statute of limitations for assessment
of the qualified taxpayer and any entities claiming an exemption
through a qualified taxpayer for taxable years after the tenth
taxable year for which the exemption is claimed for the qualified
patent shall not expire with regard to any claimed exemption.
(j) To receive the exemption provided by this section, a qualified
taxpayer must claim the exemption on the qualified taxpayer's annual
state tax return or returns in the manner prescribed by the department.
The qualified taxpayer shall submit to the department all information
that the department determines is necessary for the determination of the
exemption provided by this section.
(k) The department shall determine, record, and retain the North
American Industry Classification System code for each taxpayer
claiming an exemption under this section.
(l) In the case of a corporation described in section 2.8(2) of this
chapter that is a qualified taxpayer, the corporation may pass through
the exemption under this section to its shareholders in proportion with
their ownership of the corporation. For purposes of applying this
subsection to a corporation described in section 2.8(2) of this chapter
and its shareholders:
(1) the limitation on the exemption for qualified patent income
shall be applied at the corporation level; and
(2) the period in which the exemption can be claimed and the
years for which the exemption is claimed shall be determined at
the corporation level.

Legislative History

As added by P.L.223-2007, SEC.2. Amended by P.L.130-2018, SEC.24; P.L.194-2023, SEC.15.