Attributing royalty income

Royalty income is attributed under a hierarchy. This means you only move to the next step if you are unable to attribute under the current step.

The hierarchy for attributing royalty income is as follows:

1. Where the customer uses the intangible property.
   • If you can reasonably determine the amount of a specific receipt that relates to a specific use in a state, attribute to that state. This may be determined by a reasonable proportional method.
   • If you are unable to use the above method and your customer uses the intangible in multiple states, but you can reasonably determine the amount of a specific receipt that relates to a use in Washington, you must attribute that receipt to Washington. This may also be determined by a reasonable proportional method.
   • If you are unable to use either of the above methods and your customer uses the intangible in multiple states, attribute to where the customer primarily (more than 50%) uses the intangible.
2. The office of negotiation.
3. Where the customer ordered the service.
4. Where the bill is sent.
5. Where the customer sends the payment from.
6. To the customer’s address maintained in the seller’s records.
7. To the seller’s commercial domicile.
8. Use of intangible property

The use of intangible property will generally fall into one of the following three categories:

1. Marketing use. This means the intangible property is used for marketing, displaying, selling, or exhibiting and is connected to the sale of goods. Examples of this category include:
   • Trademarks.
   • Copyrights.
   • Trade names.
   • Logos.
2. Nonmarketing use. This means the intangible is used for purposed other than marketing, displaying, or exhibiting and is often connected to manufacturing or research and development. Examples of this category include:
   • Patents.
   • Know-how.
   • Designs.
   • Processes.
   • Models.
3. Mixed use. This means the intangible is for both marketing and nonmarketing use. Mixed use licenses may be sold for a single fee or more than one fee.
   • If a single fee is charged, the department will generally presume the receipts are for a marketing use unless the taxpayer can reasonable establish otherwise.
   • If more than one fees is charged, each fee may receive separate attribution treatment.