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In recent years there has been a push from some members of Congress to introduce what is called a "patent box" into the corporate tax system in the United States.  In essence, this patent box (named as such because it would be a box to be checked off in tax forms) would lower the corporate tax rate from 35% to 10% on any profits derived from the sales of patented products.  The "patent box profit" would be calculated to take into account not only the profits from the sale of these patented goods, but also research and development costs as well.  Similar measures have been implemented throughout the world, with the United Kingdom most recently enacting a patent box that went into effect April 2013.

Rep. Allyson Schwartz, D-Pa., has introduced this bill which she is calling the Manufacturing Innovation in America Act (H.R. 2605); she states that the goal is to keep companies from researching and developing products domestically and then outsourcing the manufacturing operations.  The Information Technology and innovation Foundation (a think tank centered around policy that encourages technological innovation) has previously argued that the United States should enact such a policy.  This will help keep the United States from, "fall[ing] behind," because it will, "effectively drive[] innovation, competitiveness, and family-wage jobs."

But how does this apply to the console and game development in the United States?  For one, it would give an incentive for console juggernauts (e.g. Microsoft and Sony) and makers of mobile platforms (Windows Phone, iOS, Android) to manufacture domestically.  Rather than outsource to control manufacturing budgets, this type of legislation might allow these manufacturers to not only create jobs domestically, but also to monitor quality control more strictly and shorten their supply chains for increased profit margins.  Secondly, this legislation could encourage more entrepreneurs to take risks by creating more products such as the Oculus VR's Oculus Rift Virtual Reality Headset.  With the games industry currently in flux due to the ever-increasing nature of games' budgets, this could be one way to rein in spending.  The last console cycle had console manufacturers selling at a loss to increase market penetration, with legislation such as the Manufacturing Innovation in America Act console creators could possibly recover more costs per unit sold and, in turn, pass those savings on to the consumer.

Lastly, a patent box would stimulate software developers, including game developers, to seek patents on their games. Imagine you create a wildly successful game and, before you know it, you make $1M in sales on Apple's App Store (we know, that's a "good" problem to have, right?).  Well when it comes time to pay Uncle Sam, you're looking at a 35% tax rate, or $350,000 in taxes.  Imagine, under a patent box system, if your taxes were only 10%, or $100,000!  You just banked an extra $250,000 in real money.  How about them apples.

It remains to be seen whether or not the legislation will pass; if it does, it could lead to positive repercussions in the gaming industry.

(Source: Law360)


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