SMACNA Opposes Taxing Association Royalty Income
SMACNA is voicing is strong opposition to a Senate Finance Committee approved tax bill provision to subject royalty income derived from the licensing of a tax-exempt organization’s name or logo to UBIT. Royalties have historically been treated as passive income, meaning the organization has entered into a licensing arrangement for use of its name or logo but is not actively involved in the marketing or administration of the product or service connected with the arrangement.
Quality-control provisions permit the tax-exempt organization to review and approve in advance all marketing materials to protect the organization’s intellectual property. The House-passed bill, H.R. 1, does not contain this misguided Senate provision.
Royalties are a significant source of non-dues revenue for associations that can be reinvested in education, skills training, standard-setting, research and other activities. Royalties also closely resemble other passive income for tax-exempt organizations – such as rent, interest and dividends – which may not be directly mission-related but are excluded from UBIT.
As to modify the tax bill in the House-Senate Conference Committee to create more certainty for America’s business community we ask you to remove this provision to tax royalty income that helps associations and other tax-exempt organizations fulfill their exempt purpose. While there are many important and useful provisions in the evolving tax legislation on both the House and Senate side of the debate, taxing royalty income received from licensing an organization’s name or logo is not one of them. Further, this unnecessarily harmful Senate provision does not belong as part of a pro-growth tax package designed to strengthen business investment and development across our nation.