Were retained copyrights, approval rights, royalty rights, and similar intellectual property annually taxable?

Plain-English summary

An author-owned company held copyrights in written works, licensed publishers to exploit those copyrights, retained approval and other subsidiary rights, and received royalties based on copies sold and sales prices.

In this 2006 annual-intangible-tax ruling, Florida treated copyrights, patents, royalties, trademarks, trade secrets, trade names, service marks, and similar government-protected intellectual-property rights as closely related to exempt franchises.

The current and future intellectual-property and related royalty rights described in the request were not subject to the annual intangible personal property tax under the cited law.

What this means for you

This is a historical ruling under chapter 199 as it applied in 2006. Its reasoning classified the described intellectual-property rights with the statutory franchise exemption; later legal changes may produce a different result.

Common questions

Which rights did the ruling address? Copyrights, retained approval and exploitation rights, royalties, patents, trademarks, trade secrets, trade names, service marks, and similar rights.

Did it cover future rights too? The request and determination included similar rights acquired in the future on the stated facts.

Why were the rights exempt? Florida viewed the government-protected rights as closely related to franchises covered by the cited exemption.

Citations and references

• Fla. Stat. § 199.185(1)(b) (2006 franchise exemption from intangible personal property tax)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06C2-001

Original ruling text

SUMMARY
QUESTION: Are annual intangible taxes due on intellectual property rights such as approval rights, patents, royalties,
copyrights, etc., subject to the annual intangible tax?
ANSWER - Based on Facts Below: Intellectual property rights such as franchises, patents, royalties, trademarks,
trade secrets, trade names, service marks, etc., have not been and are not currently subject to the intangible tax
under Ch. 199, F. S.

February 10, 2006

Re: Technical Assistance Advisement No. 06C2-001
Intangible Tax - Exemption of Intellectual Property Rights
such as Copyrights and Franchises
Section 199.185(1)(b), F.S.
XXX (Taxpayer I)
XXX (Taxpayer II)
Dear:
This is in response to your request for a technical assistance advisement asking for an opinion on whether
intellectual property rights are exempt from the annual intangible personal property tax.
FACTS AS PRESENTED BY PETITIONER
Taxpayer I, a Delaware S corporation, wholly owned by Taxpayer II and Taxpayer II's spouse, employs Taxpayer
II, and other individuals to write books and other written materials (Works). Taxpayer I has entered into numerous
contractual arrangements that sell the rights to exploit the copyrights to the Works to different national and
international publishing companies.
Taxpayer I retains the ownership of copyrights over the Works. Taxpayer I also retains certain subsidiary rights,
including, but not limited to approval rights regarding the publication of adapted and abridged versions of the Works,
approval rights regarding the sound reproduction of the Works, approval of electronic media reproduction of the
Works, and artwork related thereto, and certain other rights related to the reproduction or conversion of the Works into
other forms of media such as film or theater (Subsidiary Rights).
Under these contractual arrangements Taxpayer I shall collect royalties, the amount of which is determined by the
number of the copies of the Work sold and the sales price for the sold copies.
Taxpayer I has moved its property and source of revenue generation to the State of Florida. Taxpayer II and

Taxpayer II's spouse, the owners of Taxpayer I, are Florida residents and are the President and Vice President,
respectively, of Taxpayer I.
Taxpayer II has assigned Taxpayer II's copyright interests to Taxpayer I. Under common law and federal copyright
law, Taxpayer II may continue to retain certain residual rights by virtue of Taxpayer II's authorship of the Works and
may continue to enjoy the right to exploit these residual copyright interests, for example, through the collection of
royalties.
The Taxpayers' copyright ownership and retained Subsidiary Rights are collectively referred to as "Intellectual
Property Rights."
The Taxpayers anticipate that in the future Taxpayer I and Taxpayer II will continue to produce Works and enter
into similar contractual arrangements wherein they retain Intellectual Property Rights and the rights to exploit those
Intellectual Property Rights and receive royalties in exchange therefor.
The Taxpayers' current and future Intellectual Property Rights, any related royalty rights, and any similar retained
rights to exploit those ownership interests are referred to as "Property Rights."
REQUESTED RULING
You request the Department's determination that the Property Rights currently owned by either Taxpayer, or those
subsequently acquired by them in the future, are exempt from the intangible tax as a "franchise."
LAW AND DISCUSSION
Section 199.185(1) (b), F.S., specifically grants an exemption from intangible personal property tax for franchises.
Black's Law Dictionary (6th ed., p. 658) defines a franchise as: "A special privilege to do certain things conferred by
government on individual or corporation, and which does not belong to citizens of the country generally of common
right.... A privilege granted or sold, such as to use a name or to sell products or services. The right given by a
manufacturer or supplier to a retailer to use his product and name on terms and conditions mutually agreed upon.
"In its simplest terms, a franchise is a license from owner of a patent, copyright, trademark, trade secret or trade
name permitting another to sell a product or service under that name or mark...."
Certain special privileges granted by the government to an individual or other person are referred to as: franchises,
patents, copyrights, trademarks, trade secrets, trade names, and service marks. Each one of these items represents a
special right reserved to an individual or business by the government. For purposes of the tax imposed by Chapter
199 of the Florida Statutes, these rights and privileges granted by the Government to the holders of patents,
copyrights, trademarks, trade secrets, trade names and service marks are so closely related to franchises that they
are almost indistinguishable.
DETERMINATION

The items listed above (Intellectual Property Rights) have not been subject to the Florida intangible tax, and they
are not currently subject to the intangible tax under Ch. 199, F.S.
This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the
Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22,
F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that
subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this
advice is based may subject similar future transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are public records under
Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S. Confidential
information must be deleted before public disclosure. In an effort to protect confidentiality, we request you provide the
undersigned with an edited copy of your request for Technical Assistance Advisement, the backup material and this
response, deleting names, addresses and any other details which might lead to identification of the taxpayer. Your
response should be received by the Department within 15 days of the date of this letter.
Sincerely,
M.E. Clemens, C.P.A.
Senior Tax Specialist
Technical Assistance and Dispute Resolution
MEC/mh
Record ID 17572