Sales of fishing rights (individual fishing quotas)

Individual fishing quotas (IFQs) are a type of “catch share” regulated by the U.S. Government. They are permits to harvest specific quantities of fish or shellfish. 

IFQ permits held for exclusive use by a person are intangible rights. There are two different business and occupation (B&O) tax treatments for IFQs depending on whether they are leased or sold.

Lease of IFQs

A lease merely grants the lessee the right to fish and retain a specific share of the total allowable catches. It is not a sale of fish and does not guarantee a specific quantify of fish will be harvested. 

The gross amount received for a lease of an IFQ is subject to B&O tax under the Royalties classification and is considered apportionable income. 

Royalty income from the lease of the IFQ is attributed to the state where the IFQ is used by the lessee to harvest fish or shellfish. For an IFQ that allows fishing both in and outside of Washington, the lessor may use a reasonable proportional method to attribute income.

Sale of IFQs

Income from the outright sale of an IFQ is subject to B&O tax under the Service and Other Activities classification and is considered apportionable income.

Income from the sale of an IFQ is attributed to the state where the IFQ benefits the owner (i.e., allows them to harvest fish or shellfish). For an IFQ that allows fishing both in and outside of Washington, the seller may use a reasonable proportional method to attribute income.

Note: Attribution is merely the first step in calculating the taxable amount of apportionable income.