Section 45IAC3.1-1-61. Patent and copyright royalties as nonbusiness income

   Patent and Copyright Royalties. Patent and copyright royalties are nonbusiness income if the patent or copyright with respect to which the royalties were received did not arise out of or was not created in the regular course of the taxpayer's trade or business operations or where the purpose for acquiring and holding the patent or copyright is not related to or incidental to such trade or business operations.

  Examples:

  (1) The taxpayer is engaged in the multistate business of manufacturing and selling industrial chemicals. In connection with that business the taxpayer obtained patents on certain of its products. The taxpayer licensed the production of chemicals in foreign countries, in return for which the taxpayer receives royalties. The royalties received by the taxpayer are business income.

  (2) The taxpayer is engaged in the music publishing business and holds copyrights on numerous songs. The taxpayer acquired the assets of a smaller publishing company, including music copyrights. Their acquired copyrights are therefore used by the taxpayer in its business. Any royalties received on these copyrights are business income.

  (3) Same as last example, except that the acquired company also held the patent on a type of phonograph needle. The taxpayer does not manufacture or sell phonographs or phonograph equipment. Any royalties received on the patent would be nonbusiness income.

  Nonbusiness patent and copyright royalties are allocated to Indiana to the extent used in the state, or, if the taxpayer's commercial domicile is in Indiana, to the extent used in states in which the taxpayer is not taxable. (Department of State Revenue; Reg 6-3-2-2(k)(010); filed Oct 15, 1979, 11:15 am: 2 IR 1531; errata, 2 IR 1743)