The State of Indiana Helps Businesses Lower Their Costs!

Patent Income Tax Exemption

Certain income derived from qualified patents and earned by a taxpayer are exempt from taxation. The Tax Exemption for Patent-derived Income defines qualified patents to include only utility patents and plant patents. The total amount of exemptions claimed by a taxpayer in a taxable year may not exceed $5 million.

The exemption provides that a taxpayer may not claim an exemption for income derived from a particular patent for more than 10 taxable years. The exemption percentage begins at 50 percent of income derived from a qualified patent for each of the first five taxable years, and decreases over the next five taxable years to 10 percent in the 10th taxable year.

It also specifies that a taxpayer is eligible to claim the exemption only if the taxpayer is domiciled in Indiana and is either an individual or corporation with not more than 500 employees including employees in the individual’s or corporation’s affiliates or is a nonprofit organization or corporation. The Tax Exemption for Patent-Derived Income is established by IC 6-3-2-21.7.

The patent-derived income that is exempt under the bill includes:

  • Licensing fees or other income received from the use of a patent

  • Royalties received from the infringement of a patent

  • Receipts from the sale of a patent

  • Certain income from the taxpayer’s own use of the qualified patent to produce the claimed invention


Claiming the Exemption

A taxpayer may claim the exemption for 10 years with respect to a particular patent. The total amount of exemptions for patent-derived income that a taxpayer may claim in a taxable year is $5 million.

The following represents the year the exemption is claimed for a particular patent and the percent of patent-derived Income is exempt:

  • Years 1 through 5  = 50%

  • Year 6 = 40%

  • Year 7 = 30%

  • Year 8 = 20%

  • Year 9 and 10 = 10%

Learn More

Category: State Incentives

More State Incentives

The Data Center Gross Retail and Use Tax Exemption provides a sales and use tax exemption on purchases of qualifying data center equipment and energy to operators of a qualified data center for a period not to exceed 25 years for data center investments o... Learn More
The Economic Development for a Growing Economy (EDGE) Tax Credit provides an incentive to businesses to support jobs creation, capital investment and to improve the standard of living for Indiana residents. The refundable corporate income tax credit is calculated as a percentage (not to excee... Learn More
The Headquarters Relocation Tax Credit (HRTC) provides a tax credit to corporations that relocate their headquarters to Indiana. The credit is assessed against the corporation’s state tax liability. The Headquarters Relocation Tax Credit is established by I.C. 6-3.1-30. The Small Headquarters Relocation Tax Credit (S-HQRTC) provide... Learn More
The Hoosier Business Investment Tax Credit provides incentive to businesses to support job creation, capital investment and to improve the standard of living for Indiana residents. The non-refundable corporate income tax credits are calculated as a percentage of the eligible capital investment to support th... Learn More
The Industrial Grant Fund provides assistance to municipalities and other eligible entities as defined under I.C. 5-28-25-1 with off-site infrastructure improvements needed to serve the proposed project site. Upon review and approval of the Local Recipient’s application, project specific Milestones are established for completing th... Learn More
The Redevelopment Tax Credit provides an incentive for investment in the redevelopment of vacant land and buildings as well as brownfields. This credit, established by Indiana Code § 6-3.1-34, provides companies and developers an assignable income tax credit for investing in the redevelopment of communities... Learn More
The state of Indiana offers two tax incentives targeted at encouraging investments in research and development. Taxpayers may receive a credit against their Indiana state income tax liability calculated as a percentage of qualified research expenses. In addition, taxpayers may be refunded sales tax pai... Learn More
The Skills Enhancement Fund (SEF) provides assistance to businesses to support training and upgrading skills of employees required to support new capital investment. The grant may be provided to reimburse a portion (typically 50%) of eligible training costs over a period of two full calenda... Learn More
The Venture Capital Investment Tax Credit program improves access to capital for fast growing Indiana companies by providing individual and corporate investors an additional incentive to invest in early stage firms. Investors who provide qualified debt or equity capital to Indiana companies receive a credi... Learn More