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Indiana’s Tax Exemption for Patent-Derived Income Appears to be Underutilized

Did you obtain a utility or plant patent after December 31, 2007?  Are you an individual, corporation domiciled in Indiana with 500 or fewer employees, or a nonprofit organization or nonprofit corporation domiciled in Indiana?  If you answered yes to both of those questions, you may be eligible for an exemption, up to $5 million, from state income taxation this year for certain income derived from the patent. The patent-derived income that is exempt includes:

  • Licensing fees or other income received from the use of a patent
  • Royalties received from the infringement of a patent
  • Receipts from the sale of a patent

The percentage of income derived from the patent this year that could be exempt from state tax depends on how many years you’ve had your patent.  The percentage starts at 50 percent for the first five taxable years of the life of your patent and decreases over time to 10 percent for the ninth and tenth taxable years. All indications are that Indiana’s Patent-Derived Income Exemption is being underutilized.  For 2008, only 10 such taxpayers took advantage of the exemption (the sum of exemptions claimed was around $147,000).  In 2009, the number again was only 10 (the sum of exemptions claimed was around $293,000).  If you would like to discuss whether you are eligible for this exemption, or if you have any other questions about intellectual property and technology law, please contact one of the members of our Corporate and Transactional Practice Group.

To learn more about Daniel L. Boots and his practice, visit his profile.

  • Partner

    Dan is a senior partner of the Intellectual Property and Technology (IP&T) group (former chair 1997-2009), concentrating his practice on counseling emerging and established businesses in all areas of intellectual property and ...

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