Qualified Production Activities Income

Qualified Production Activities Income

Qualified Production Activities Income is a class of income which is entitled to favored tax treatment under Section 199 of the United States Internal Revenue Code. [26 U.S.C. 199.]

History

Former section 114 of the United States Internal Revenue Code excluded "extraterritorial income" which constituted "qualifying foreign trade income" under former section 941 from income. [26 U.S.C. 114 (repealed).] The effect of these provisions was a reduced tax burden in exchange for increased exports, creating an incentive for individuals and businesses within the United States to export. In August 2001, a panel of the World Trade Organization ruled that former section 114 of the United States Internal Revenue Code constituted a violation of the Agreement on Subsidies and Countervailing Measures as a prohibited export subsidy, and a WTO Appellate Body affirmed the finding in January 2002. The finding was based on the fact the provision resulted in the United States government forgoing revenue to which it was otherwise entitled and the fact the resulting subsidy was conditioned on export performance. [www.wto.org/english/tratop_e/dispu_e/108abrw_e.pdf] The United States Congress repealed the exclusion in 2004. To offset the loss of the section 114 benefit, Congress enacted Section 199 regarding qualified production activities income. [Donaldson, Samuel A.; Federal Income Taxation of Individuals (Second Edition)]

Mechanics

Section 199 allows manufacturers to deduct nine percent of their "qualified production activities income" (QPAI) in 2010 and following years. [26 U.S.C. 199(a)(1).] The deduction is in the process of "phasing-in," with three percent of QPAI allowed as a deduction in 2005 and 2006, and six percent allowed in 2007-2009. [26 U.S.C. 99(a)(2)] The effect of the deduction is to reduce the rate of taxation on QPAI.

QPAI is defined as the portion of taxpayer income which is equal to the excess of the taxpayer's domestic production gross receipts over the sum of the cost of goods that are allocable to such receipts, and other expenses, losses, or deductions which are properly allocable to such receipts. [26 U.S.C. 199(c)(1)]

Domestic production gross receipts is defined in the provision as the gross receipts of the taxpayer derived from any lease, rental, license, sale, exchange, or other disposition of:

1. tangible personal property, computer software, or sound recordings manufactured, produced, grow, or extracted by the taxpayer in whole or significant part within the United States; [26 U.S.C. 199(c)(4)(A)(i)(I).]

2. a qualified film, defined as a non-pornographic film where not less than 50 percent of the total compensation relating to production is compensation for services performed in the United States by actors, production personnel, directors, and producers; [26 U.S.C. 199(c)(4)(A)(i)(II) and 26 U.S.C. 199(c)(6).]

3. electricity, natural gas, or potable water produced by the taxpayer in the United States; [26 U.S.C. 199(c)(4)(A)(i)(III)]

4.construction of real property performed within the United States where the taxpayer is engaged in actively conducting a construction trade or business in the ordinary course of that business; [199(c)(4)(A)(ii)] and

5. engineering or architectural services performed within the United States where the taxpayer is engaged in actively conducting an engineering or architectural trade or business and in the ordinary course of that business provides such services with respect to construction of real property with the United States. [199(c)(4)(A)(iii)]

However, domestic production gross receipts specifically do not include gross receipts derived from the sale of food or beverages at a retail establishment, from the transmission or distribution of electricity, natural gas, or potable water, or from the lease, rental, sale, exchange, or other disposition of land. [26 U.S.C. 199(c)(4)(B).]

Effect

The overall effect of the provision is to encourage domestic production. While this might seem to be a quite different goal than that of the provision it replaced, in theory, increased domestic production should indirectly lead to increased exports as the domestic demand is satisfied. While the QPAI deduction constitutes the United States government forgoing revenue which would otherwise be available to it, it should not run afoul of the same WTO rules because the availability of the deduction is not conditioned on export performance.

References

Notes

#26 U.S.C. 199.
#26 U.S.C. 114 (repealed).
# [http://www.wto.org/english/tratop_e/dispu_e/108abrw_e.pdf United States – Tax treatment for "Foreign Sales" Corporations] , Report of the Appellate Body (WT/DS108/AB/RW)
#Donaldson, Samuel A.; Federal Income Taxation of Individuals (Second Edition).
#26 U.S.C. 199(a)(1).
#26 U.S.C. 199(a)(2).
#26 U.S.C. 199(c)(1).
#26 U.S.C. 199(c)(4)(A)(i)(I).
#26 U.S.C. 199(c)(4)(A)(i)(II)and 26 U.S.C. 199(c)(6).
#26 U.S.C. 199(c)(4)(A)(i)(III).
#26 U.S.C. 199(c)(4)(A)(ii).
#26 U.S.C. 199(c)(4)(A)(iii).
#26 U.S.C. 199(c)(4)(B).


Wikimedia Foundation. 2010.

Игры ⚽ Поможем написать курсовую

Look at other dictionaries:

  • Qualified Production Activities Income - QPAI — Income derived from domestic production that qualifies for reduced taxation. More specifically, qualified production activities income is the difference between the manufacturer s domestic gross receipts and aggregate cost of goods and services… …   Investment dictionary

  • Adjusted gross income — Part of a series on Taxation Taxation in the United States …   Wikipedia

  • Provisional Income — The level of income that is used to determine whether a taxpayer is liable for tax on his or her Social Security benefits, and by how much. Provisional income is calculated by making certain adjustments to the taxpayer s gross income. The formula …   Investment dictionary

  • Algeria — /al jear ee euh/, n. a republic in NW Africa: formerly comprised 13 departments of France; gained independence 1962. 29,830,370; 919,352 sq. mi. (2,381,122 sq. km). Cap.: Algiers. * * * Algeria Introduction Algeria Background: After a century of… …   Universalium

  • economic planning — Use of government to make economic decisions with respect to the use of resources. In communist countries with a state planning apparatus, detailed and rigid planning results in a command economy; land, capital, and the means of production are… …   Universalium

  • Labour and tax laws in Iran — govern the employment and fiscal contributions of people working and living in Iran. Roughly one fourth of Iran s labour forc is engaged in manufacturing and construction. Another one fifth is engaged in agriculture, and the remainder are divided …   Wikipedia

  • Economy of Russia — Russia is a unique emerging market, in the sense that being the nucleus of a former superpower shows more anomalies. On one hand, its exports are primarily resource based, and on the other, it has a pool of technical talent in aerospace, nuclear… …   Wikipedia

  • Agricultural research in Israel — started around 1921 in the Agricultural Experiment Station, which since then developed into a major agricultural research center the Agricultural Research Organization (ARO, also known as The Volcani Centre). The ARO has six institutes, two… …   Wikipedia

  • Real property use tax — The Real Property Use Tax (RPUT) is a tax system with assessment based on the size, level of development, and time in use of real property, and designed for general revenue acquisition. The tax system is a proposed replacement for the federal… …   Wikipedia

  • Islamic Golden Age — The Islamic Golden Age, also sometimes known as the Islamic Renaissance, [Joel L. Kraemer (1992), Humanism in the Renaissance of Islam , p. 1 148, Brill Publishers, ISBN 9004072594.] was traditionally dated from the 8th century to the 13th… …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”