Internet Sales Pose International Tax Challenges

by Sanford H. Goldberg, Howard J. Levine
Published: June 01, 1996
Source: Journal of Taxation

The Internet is raising new problems in federal, state, and local taxation. Broadly speaking, the Internet is a "network of networks" linking millions of computers around the world through telephone and other lines of communication. Commercial use of the Internet has grown rapidly. One recent estimate placed the value of Internet transactions at $200 million,(2) and claims have been made that this figure could grow geometrically. Presently, a computer user with a modem and appropriate software can browse what has become known as the "world wide web" and order goods from on-line catalogs that are accessed through "home pages" located on servers connected to the web. A user can also order and take delivery of software and certain services, transfer funds, and even carry on two-way vocal communications over the Internet. Commercial purveyors on the Internet often build redundancy into their hardware platforms by having not only one server, but also at least one other "mirror" server that may be located in another country. The user may or may not be able to tell which server is being used in its transactions, and the server used by the purveyor may or may not be able to tell the physical location of the user.

As computers become more sophisticated, transactions more secure, and transmission of digital information more rapid, the potential uses of the Internet will continue to expand. Ironically, perhaps, the more flexible the Internet becomes, the more difficult it will be to tax these electronic transactions. This article addresses some of the challenges that international commercial transactions taking place on the Internet pose under existing tax regimes, and suggests possible directions for any future tax legislation or treaties designed to tap into what is likely to become an ever rising tide of sales and other income from Internet activities. From the discussion, it will be seen that, under current law, the tax treatment of commercial transactions conducted through the Internet may depend on which of several analogies to more common-place transactions is applied. As explored briefly below, it appears that State tax authorities have been struggling with related issues much longer than the Federal government, but those authorities may ultimately prove to be of limited use in developing appropriate new standards.

This article focuses solely on sales and similar transactions over the Internet. A future article will address issues raised by services -- including information services -- provided over the Internet, as well as Internet access providers. The principal focus of this article is on "inbound" sales, although similar questions arise in other Internet sales under Subpart F, foreign tax law, and our treaties.

The Internet as a Communications Medium

In one sense, the Internet is like a telephone line: it offers a means for two or more users to communicate simultaneously or on a delayed basis. In other ways, however, the Internet is like a pipeline: it permits delivery of software and certain services directly by a supplier to the user, but the links between these two positions on the pipeline may not be predicted or, possibly, even measured. There are many different possible pathways linking the supplier's computer server and the user's.

When a consumer "logs-on" to his home computer, he dials into a server through a telecommunications network and software supplied by the commercial Internet server. The computer's modem alternatively sends and receives information to establish the consumer's identity. Once the consumer's password is verified, the consumer has access to the server's local node, which operates like a modem to transmit information between the server and the consumer. The server can then act like a conduit through which the consumer can access third-party commercial sellers on the Internet or the world wide web.

Taxation of Internet Commerce

Despite significant commercial impacts in the affected jurisdictions, it appears that, under current law, the seller or provider may be able to avoid tax in the jurisdiction of the consumer on its sales of tangible products and software made over the Internet.

Sales of Tangible Property into the United States Under Treaties. The threshold issue arising under a typical bilateral treaty of the U.S. is whether the server used by the seller constitutes a "permanent establishment" of the seller in the host country. A number of the U.S. treaties in force provide that a permanent establishment is a "fixed place of business" including specifically an office or branch.(3) A typical U.S. treaty excludes from permanent establishment status the use of facilities or maintaining a stock of goods or merchandise solely for the purpose of storage, display, or delivery of the goods or merchandise; maintaining a stock of goods solely for the purpose of processing by another enterprise; or maintaining a fixed place of business solely to carry on any other activity of a "preparatory or auxiliary" character.(4) U.S. treaties also generally provide that an enterprise shall not be deemed to have a permanent establishment as a result of carrying on a business through a broker, general commission agent, or other independent agent who is acting in the ordinary course of their business.(5) On the other hand, a dependent agent who has and who habitually exercises the authority to conclude contracts in the name of an enterprise, will normally create a permanent establishment for the enterprise on whose behalf the agent is acting.(6)

Whether a seller has a U.S. permanent establishment as a result of sales activities generated through a "home page" situated on a server(7) located in the United States depends on the answers to many questions, such as whether the location of a computer file, constituting a home page on a server located in the U.S., and which might be used only in a portion of a seller's Internet sales, constitutes a "particular site" and, therefore, a place of business with sufficient permanence to constitute a fixed place of business under a treaty.(8) Can the website be considered solely (an exempt) display of goods?

Does it matter whether a "home page" is the tax equivalent of a mail order catalog or, rather, is more like an entire sales outlet located in the United States?

Should the standard for a website be greater than, equal to or less than that for a physical catalog mailed into the U.S.? Is preserving sales approval, including credit and reference checks, to be exercised solely outside the U.S., adequate to avoid a permanent establishment under the treaty?

If the seller's home page on a computer server located in the U.S. permits not only the viewing of merchandise but also placing and accepting orders, a strong case can be made for treatment of the site as a fixed place of business, like a catalog store.(9) While a server may be shared with many other users, that may not matter to the tax analysis if space on the server is properly analogized to leasing space in a mall containing many other sales outlets. On the other hand, if no individual is making decisions or taking action in the U.S., the mere fact that sales-related software is located in the United States may well not be considered a "particular site" or other fixed base under a treaty, regardless of attempts to paint the facts with labels such as a "virtual" storefront. Furthermore, it may be argued that the use of an independent agent's server is more closely analogized to a print, broadcast, or interactive advertisement. For such reasons, and because it is apparent that the proper analogy is far from clear, it is suggested below that a new legal standard may have to be developed if the U.S. intends to tax income from these sales.

The Commentaries in paragraph 10 to Article 5(4) of the 1992 OECD Model Convention state that a permanent establishment may exist if the business of the enterprise is carried on "mainly through automatic equipment," with the activities of personnel restricted to setting up, operating, controlling, and maintaining such equipment. It appears, however, that these Commentaries are focusing on gaming and vending machines where a user's entire transaction is conducted by interaction with the machine. In contrast, the activities conducted or functions performed at the site of a computer server on the Internet will normally be much more limited. In the case of software sales, however, the server may be fully capable of accepting orders and "delivering" a copy of the software for downloading by a user; even in such cases, and assuming furthermore that such a transaction should be treated as a sale, it is far from clear that the seller would have a permanent establishment in the country in which the server is located, because the server might be considered an (exempt) instrument for delivery. In any case, the OECD Commentary does not appear focused on Internet transactions.

Once it is determined that a permanent establishment exists under existing treaties, governments must address the question of what income is attributable to the permanent establishment. It would appear that if a mirror server located outside the United States is actually used to effect the transactions, then any foreign source income from those sales should not be attributable to the U.S. permanent establishment.

Whatever decision the U.S. reaches on these questions under its treaties must be coordinated with the similar decisions reached by its treaty partners in order to avoid double taxation. Governments may ultimately be forced to agree to a lower threshold of taxation for Internet sales, or attempt to reach these sales by extending rules such as Subpart F or transfer pricing to prevent taxpayers from avoiding taxation merely by locating their servers in, and conducting all other sales activities from, low tax jurisdictions. It seems clear that the current rules are not sufficiently advanced to deal with these issues.(10) Perhaps negotiation of new permanent establishment articles with other treaty partners will ultimately be required, if not, then at least a competent authority understanding would be expected.

Sales under the Internal Revenue Code. The Code focuses on whether the seller of tangible personal property is engaged in a U.S. trade or business. Internal Revenue Code Search7RHSearch7RH871(b) and 882(a) impose a tax on income that is effectively connected with the conduct of a trade or business within the U.S. If the seller is not engaged in a U.S. trade or business, its sale into the U.S. via the Internet will not attract U.S. tax, regardless of where title passes.(11) Therefore, an initial question under the Code is whether a world wide website, where the seller's home page is situated on a computer server located in the United States, will cause the seller to be considered engaged in a trade or business within the U.S.

Generally, whether a foreign seller is "engaged in a trade or business" in the U.S., is a question of fact, depending on the continuity and regularity of its economic activities. The courts have held that where goods are regularly purchased and sold in the U.S., the seller is considered to be engaged in a trade or business in the U.S. See, e.g., U.S. v. Balanovski, 131 F. Supp. 898 (S.D.N.Y. 1955), aff'd in part, rev'd in part, 236 F.2d 298 (2d Cir. 1956), cert. denied, 352 U.S. 968 (1957). In contrast, an isolated and unplanned sale should indicate the absence of a U.S. trade or business. See, e.g., Linen Thread Co. v. Commissioner, 14 T.C. 725 (1950). Thus, the court held in Continental Trading Inc. v. Commissioner, 265 F.2d 40 (9th Cir.), cert. denied, 361 U.S. 827 (1959), that "in light of the whole enterprise," the company's U.S. sales were just "casual or incidental transactions" which did not constitute a trade or business.

If a foreign seller has an employee in the U.S., it is clear that the employee's activities are attributed to the employer in determining whether the employer is engaged in a trade or business in the U.S. Helvering v. Boekman, 107 F.2d 388 (2d Cir. 1939). While the treaty area includes bright lines tests for independent contractors, the activities of the independent contractor are also often attributed to the foreign principal under the Code if there is a regular relationship between the foreign seller and an independent contractor operating in the U.S. In De Amodio v. Commissioner, 34 T.C. 894 (1960), aff'd 299 F.2d 623 (3d Cir. 1962), for example, the court held that a nonresident alien who owned properties in the U.S. was engaged in a trade or business in the U.S. through the continuous and regular activities of his agents who were all independent contractors.(12)

Another issue is whether the use of a U.S. server to store a sales catalogue (and, possibly, accept orders) constitutes solicitation activities, and if so, whether solicitation alone is ever sufficient to cause a foreign seller to be considered engaged in a trade or business in the U.S. In Piedras Negras Broadcasting Co. v. Commissioner, 43 B.T.A. 297 (1941), nonacq., 1941-2 C.B. 22, aff'd, 127 F.2d 260 (5th Cir. 1942), a foreign corporation which executed contracts abroad relating to broadcasts designed to be heard by listeners in the U.S. was held not subject to U.S. income tax on the income from those contracts. The circuit court's opinion in the case rested solely on the ground that the taxpayer's source of income was outside the U.S., but the lower court also found that the foreign corporation was not engaged in a U.S. trade or business in the U.S. The lower court's opinion was based on the in personam jurisdiction cases which had held that mere solicitation of business, where goods were shipped from outside the jurisdiction, was not sufficient to constitute "doing business" for nexus purposes. In Piedras Negras, the Court held that the foreign broadcasting corporation cannot be said to be doing business in the U.S. solely due to its broadcasting. The Court reasoned that if a sale of merchandise, a solicitation of a sale, or a distribution of a magazine by a foreign publisher, cannot constitute transacting business in a state, neither could mere broadcasting. 43 B.T.A. at 311-12. No capital or labor was employed in the state, and no activities took place therein which could be considered the source of the income involved. Id. at 313.

However, several years after Piedras was decided, the Supreme Court adopted a new standard for doing business in International Shoe Co. v. Washington, 326 U.S. 310 (1945), focusing on minimum contacts. In Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450 (1959), the Supreme Court held that solicitation plus an office in the state was sufficient contact to subject the seller to state tax. Thereafter, several state courts held that the mere solicitation of orders within the state was a sufficient contact to allow the state to impose an income tax. See, e.g., International Shoe Co. v. Fontenot, 107 So. 2d 640, cert. denied, 359 U.S. 984 (1959); Brown-Forman Distillers Corp. v. Collector, 101 So. 2d 70 (La. 1958), appeal dismissed and cert. denied, 359 U.S. 28 (1959). In response to these cases, Congress passed P.L. 86-672 section 101, codified at 15 U.S.C. sections 381-384. This law provides that no State shall have the power to tax the net income derived within such State by a nonresident through interstate commerce if the nonresident's only business activity within such State during the taxable year is the solicitation of orders for sales of tangible personal property where approval and filling of the order occurs outside such State. The Supreme Court, in National Bellas Hess, Inc. v. Dept. of Rev. of Ill., 386 U.S. 753 (1967), held that Illinois' imposition of a use tax on goods purchased for use within the state from an out-of-state mail-order house with no outlets or sales representatives in Illinois was an unconstitutional burden on interstate commerce. (See discussion below of Quill Corp. v. North Dakota, 504 U.S. 298 (1992) (regarding the nexus requirement of the Commerce Clause)). In any event, however, the Federal tax authorities no longer appear to look to state tax nexus authorities for guidance.

In Rev. Rul. 56-165, 1956-1 C.B. 849(13) the Service ruled that regular and active solicitation in the United States was sufficient to consider a taxpayer engaged in a U.S. trade or business. In this situation, however, the company sold logging equipment which was brought into the United States for demonstration purposes and to generate orders, so this physical presence in the United States could be regarded as more involved than mere solicitation over the Internet.

Under current law, even if one concludes that use of a U.S. server with the power to accept orders from a catalogue constitutes a U.S. trade or business, it is still possible to avoid U.S. tax on the sales income if the income in question is not effectively connected with the U.S. trade or business. Section 864(c) defines effectively connected income, and it even includes income derived from a sale or exchange of inventory that takes place outside of the U.S. if it is attributable to an office or other fixed place of business within the U.S. I.R.C. Search7RH864(c)(4)(B)(iii). However, the income will only be attributable to the U.S. office or other fixed place of business if such office or fixed place of business is a material factor in the production of such income, and such office or fixed place of business regularly carries on activities of the type from which such income is derived. I.R.C. Search7RH864(c)(5)(C). For this purpose, a store or sales outlet of an independent agent (i.e., a general commission agent, broker, or other agent of an independent status acting in the ordinary course of his business in that capacity), is not considered an office or other fixed place of business of a foreign seller irrespective of whether such agent has authority to negotiate and conclude contracts in the name of the foreign seller, and regularly exercises that authority, or maintains a stock of goods from which he regularly fills orders on behalf of his principal. The office or other fixed place of business of an agent who is not an independent agent is disregarded only if such agent does (a) not have the authority to negotiate and conclude contracts in the name of the nonresident alien and regularly exercises that authority, or (b) does not have a stock of merchandise belonging to the nonresident alien from which orders are regularly filled on behalf of such alien. See Treas. Reg. Search7RH1.864-7(d). Under these standards, it should be possible to make a strong argument that a foreign source sale over the Internet does not give rise to effectively connected income.

Other means of avoiding effectively connected income may be to engage in the digital equivalent of consignment sales or, ultimately and simply, to locate all the sales software on servers located outside the U.S. If these alternatives prove to be effective for foreign sellers, the U.S. will not be able to tax income from these sales under the current income tax. Similarly, the use by a foreign seller of a mirror server located outside the U.S. may make such international sales difficult, or impossible, for the U.S. to reach for tax purposes. Indeed, the fact that the buyer may not know where the seller's server is actually located may also prevent the tax authorities from effectively auditing international Internet sales activities.

State Tax Experience. The initial State tax questions relevant to Internet transactions involve different, but meaningful threshold issues raised by the in personam jurisdiction cases and nexus questions under the Due Process and Commerce clauses of the U.S. Constitution, some of which were mentioned above.

Among the more recent authorities is Quill Corp. v. North Dakota, 504 U.S. 298 (1992). Quill held that the North Dakota's enforcement of its use tax against an out-of-state mail order house with no physical presence in the state was an unconstitutional burden on interstate commerce. Importantly, the fact that the seller had licensed software in the State was considered insufficient to meet the "substantial nexus" requirement of the Commerce Clause. This software, called "Quill Service Link," enabled a customer direct computer access to Quill's computer in order to check on available inventory and confirm current prices. There is no reason to believe that the Supreme Court would have decided Quill differently if the sales there had been made over the Internet, since the Internet may involve even less physical contact with the State than the catalogs mailed in and located there. The Court found that Quill's contacts were sufficient to meet the minimum contracts of the Due Process Clause, but not enough to overcome the nexus burden imposed by the Commerce Clause.

In Dept. of Rev., State of Florida v. Quotron Systems, Inc., 615 So.2d 774 (Fla. Dist. Ct. App. 1993), the State court held that "tangible personal property," as applied in the sales tax area, does not includes images on a video screen.(14) In Orvis Co. and Vermont Info. Processing, Inc. v. Tax Appeals Tribunal of the State of New York et al., 86 N.Y.2d 165 (1995), New York's highest court held that an out-of-state vendor was sufficiently present in New York, and thus subject to the compensating use tax, when its sales personnel visited retailers in New York several times a year, and when it agreed to provide a free visit of a computer software installer at the customer's site if problems arose within the first two months after installation.(15) The vendor sold computer software and hardware to distributors throughout the United States.

Proposed regulations published by the New Jersey Division of Taxation in 1955 attempt to subject to New Jersey franchise tax on its apportioned income attributable to fees received by a foreign corporation represented in the State by a foreign independent contractor licensing software to New Jersey businesses. The New Jersey proposed regulations would also reach the foreign corporation's annual maintenance fees and training fees (for training conducted outside New Jersey) from its New Jersey customers.

It appears from these developments that the State tax authorities have been attempting to reach activity like commercial sales over the Internet for some time, with substantial resistance from taxpayers, and only limited success where physical presence of the seller was limited. Of course, the State authorities are dealing with different legal questions. Nevertheless, the State tax experience could be relevant to governments considering new rules in this area.(16)

"Sales" of Software into the U.S. via the Internet

It is difficult to address the tax treatment of software transactions over the Internet, since many of the basic tax issues in this area, like the character of the income and applicable source rules, have not yet been definitively resolved.

Character. Software transfers are almost always made by license, presumably to avoid violating the "first sale doctrine" under U.S. federal copyright law. On the one hand, there is a growing consensus that this should not mean that these transfers will give rise to royalty income, unless the user also acquires a right to reproduce the computer code for further distribution.(17)

In fact, there is some indication that the Internal Revenue Service believes that granting a single user license to use prepackaged software programs gives rise to sales income.(18) Similarly, the 1992 OECD Commentary on Article 12 (Royalties) states that when software is sold for personal or business use by the purchaser, the income received by the seller should be treated as commercial profits, taxed under the Business Profits Article (Article 7) or the Independent Personal Services Article (Article 14), and any restrictions on the form of transfer to protect copyrights would be ignored for tax purposes. Similarly, when full ownership of the software is transferred, the income from the sale would also be taxed under Article 7, Article 14, or Article 13 (dealing with the taxation of capital gains) of the 1992 OECD Model.

On the other hand, based on its reactions to the 1992 OECD Commentaries, it appears that the United States government may take the view that payments for the acquisition of software measured by reference to the productivity or use of such software constitutes a "royalty," regardless of the use of the software. In order to qualify for the royalty exemption in a treaty, software must generally be characterized as a literary, artistic, or scientific work. While some nations might consider computer software a scientific or even literary work, some recent U.S. treaties are taking away the ambiguity by specifically referring to computer software. For example, in the third protocol to the Convention Between the United States of America and Canada, signed on March 17, 1993, the parties agreed that "[p]ayments for the use of, or the right to use, computer software . . . arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State." Article 7(1) (Royalties) of the third protocol.


It is premature to suggest appropriate standards for governments to adopt in attempting to tax sales conducted in full or in part over the Internet. As suggested above, however, taxpayers seem well equipped to minimize worldwide taxation on such sales. Therefore, it is up to the governments of the world to determine whether the status quo -- offering opportunities to avoid tax in consuming nations -- is appropriate. If it is determined that the existing tax rules should be changed to tax income arising from consuming nations, governments will presumably find it sufficient simply to expand existing concepts and laws to reach -- in appropriate cases -- what is likely to become substantial future economic activity over the Internet. Any such efforts should assure that Internet sales income is taxed only once.



1. Mr. Glicklich, Mr. Goldberg, and Mr. Levine are partners of Roberts & Holland LLP, a firm concentrating its practice in international and other tax matters.

2. See Business Week, "New Tolls on the Info Highway?" February 12, 1996, page 96. It is not clear if information services, which charge based on connection time, are included in this estimate.

3. See, e.g., U.S.-Canada treaty, Article V(2)(b) and (c); U.S.-Netherlands treaty, Article 5(2)(b) and (c). See, also, 1992 OECD Model Convention, Article 5(2)(b) and (c) ("1992 OECD Model").

4. See, e.g., U.S.-U.K. treaty, Article 5(3); U.S.-Japan treaty, Article 9(3). See 1992 OECD Model, Article 5(4).

5. See, e.g., 1992 OECD Model, Article 5(6).

6. See, e.g., 1992 OECD Model, Article 5(5); Taisei Fire & Marine Ins. Co. v. Commissioner, 104 T.C. 535 (1995), acq. 1996-1 I.R.B. 5.

7. We assume that the owner of the server located in the U.S. has a permanent establishment and is engaged in a trade or a business in the U.S. as a result. It is likely that the server will have other hardware in the U.S. and provide considerable services in connection with such equipment.

8. See, e.g., 1992 OECD Model, Commentary on Article 5(5). The 1977 OECD Model Commentary on Article 5(5) notes that in order to have a fixed place of business, there must be a link between the place of business and a specific geographical point. The 1963 OECD Model Commentary states that "the essential characteristic of a permanent establishment . . . [is] a distinct 'situs,' a 'fixed place of business'." Article 5(2). However, there have been treaty exceptions to the concept of a "fixed" location. For example, recent German cases have held that movable places of business with temporary fixed locations, such as sales stands in a market, can meet the location test in the permanent establishment definition. See Bundesminister der Finanzen, Anwendungserla zur AO (AEAO), BSt. Bl. 1987 I 664, 665; Steuerricthlinien, Textsammlung, 800(5) (looseleaf). See also Rev. Rul. 56-165, 1956-1 CB 849.

9. Presumably, the absence of a stock of goods in the U.S. would not prevent a catalog store from constituting a permanent establishment.

10. Cf. IRC Search7RH6114 (disclosure of treaty-based position).

11. See IRC Search7RHSearch7RH864(c)(2), 864(c)(3), 864(c)(4)(B), 872(a)(2), 882(b)(2).

12. The court also found that the nonresident alien did not have a permanent establishment in the U.S. under the U.S.-Switzerland convention.

13. See also Handfield, 23 T.C. 633 (1955).

14. Cf. Quotron Systems, Inc. v. Limbach, State TCR 250-003 (Ohio S. Ct. 1992) (holding that Quotron was liable for use tax because it created a sufficient nexus to Ohio when it constructed certain communications equipment in Ohio, owned equipment delivered to customers in Ohio, and employed personnel in Ohio to install and maintain that equipment).

15. Cf. PLR 7739023 (Sept. 29, 1977) in the federal area, which ruled that a foreign corporation which sends its employees to the U.S. to assist and instruct a U.S. purchaser in connection with a sale or license of certain technology, will not be engaged in a U.S. trade or business through a permanent establishment.

16. The authors are aware of the reaction to suggestions of taking State tax standards into account (e.g., replacing the arm's length transfer pricing standard under Section 482 with an approach based upon formula apportionment). The Internal Revenue Code includes a 3% excise tax on "communications services." Many states impose a similar tax, as do certain foreign jurisdictions. To the extent telephone lines are used in an Internet communication, these taxes might apply. Under such excise taxes, the amount subject to tax is based not on the value of the underlying transaction, but rather on the charge for the digital transmission. Thus, the same tax would be due for non-commercial uses as for a commercial use of the communication lines. (Local telephone, toll telephone, and teletypewriter exchange services are subject to the Federal excise tax. I.R.C. Search7RHSearch7RH4251-4254. But see PLR 9228016 (industry-wide e-mail and electronic clearinghouse services provided by a not-for-profit cooperative not subject to the excise tax); PLR 9412018 (similar result for interactive television)). The State tax authorities have considered distinctions of this type in connection with the taxation of communication services, as distinct from the provisions of information services. See, e.g., Quotron Systems v. Gallman, 39 N.Y.2d 428 (1976). See generally, Arnold B. Panzer, "The Taxation of Data Processing and Computer-Assisted Information Services in New York State," J. State Taxation [Spring 1985], p. 67 at 82-84.

17. See PLR 9128025. See also 1992 OECD Commentary on Article 12-5: "[A royalty may arise] where the transferor is the author of the software (or has acquired from the author his rights of distribution and reproduction) and he has placed part of his rights at the disposal of a third party to enable the latter to develop or exploit the software itself commercially, for example by development and distribution of it."

18. Cf. PLR 9231002 (maintenance contracts can give rise to sales income). A longstanding debate rages between representatives of IBM, on the one hand, and other software companies. See, e.g., 95 TNT 185-61 (Sept. 21, 1995) (letter from John M. Peterson, representing the Software Coalition, urging the Treasury and the IRS to issue guidelines establishing that software product revenues are not "royalties," but that the revenues from exploitation licenses are "royalties"); 91 TNT 237-51 (Nov. 20, 1991) (same). Cf. 94 TNT 92-30 (May 12, 1994) (letter from Ronald A. Pearlman, representing International Business Machines Corporation, arguing that licenses can take many forms and thus should not be subject to a general characterization rule); 92 TNT 256-20 (Dec. 24, 1992) (arguing that computer software license transactions should not always be characterized as sales for federal income tax purposes); 92 TNT 165-38 (Aug. 13, 1992) (same).