David L. Koontz and Jeffery M. Kadet, Effects of the New Sourcing Rule: ECI and Profit Sharing, 159 Tax Notes 1119 (2018), https://digitalcommons.law.uw.edu/faculty-articles/497
For the first time in eons, Congress has seen fit to change a basic rule for the sourcing of income. The Tax Cuts and Jobs Act (P.L. 115-97) minced few words in its addition of a single sentence to section 863(b) that applies to sales or exchanges of inventory property (1) produced in whole or in part by the taxpayer in one country, and (2) sold or exchanged in another country. The United States can either be the country where the inventory property is produced or the country where it is sold.
With this change, income from the sale of inventory produced by a taxpayer will no longer be sourced at the location where any sales activities take place. Rather, the location, or locations, of production activities will be the sole determining factor. This change is effective for tax years beginning after December 31, 2017.