Indiana Code 6-3-2-21.7. Exemption for certain income derived from patents
(b) As used in this section, “invention” has the meaning set forth in 35 U.S.C. § 100(a).
Terms Used In Indiana Code 6-3-2-21.7
- adjusted gross income: shall mean the following:
(a) In the case of all individuals, "adjusted gross income" (as defined in Section 62 of the Internal Revenue Code), modified as follows:
Indiana Code 6-3-1-3.5
- corporation: includes all corporations, associations, real estate investment trusts (as defined in the Internal Revenue Code), joint stock companies, whether organized for profit or not-for-profit, any receiver, trustee or conservator thereof, business trusts, Massachusetts trusts, any proprietorship or partnership taxable under Section 1361 of the Internal Revenue Code, and any publicly traded partnership that is treated as a corporation for federal income tax purposes under Section 7704 of the Internal Revenue Code. See Indiana Code 6-3-1-10
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Fair market value: The price at which an asset would change hands in a transaction between a willing, informed buyer and a willing, informed seller.
- Partnership: A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
- Statute of limitations: A law that sets the time within which parties must take action to enforce their rights.
- Year: means a calendar year, unless otherwise expressed. See Indiana Code 1-1-4-5
(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 C.F.R. § 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 C.F.R. § 121.103, does not exceed five hundred (500) persons; or
(C) a nonprofit organization or nonprofit corporation as specified in:
(i) 37 C.F.R. § 1.27(a)(3)(ii)(A) or 37 C.F.R. § 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.
As added by P.L.223-2007, SEC.2. Amended by P.L.130-2018, SEC.24; P.L.194-2023, SEC.15.