Washington Law Review


In Sierra Club v. Commissioner, the Ninth Circuit decided that royalties are payments for the right to use intangible property and are by definition "passive." The court applied this definition and held that Sierra Club's income from renting its mailing list was a royalty payment and thus exempt from taxation. This Note argues that while the court reached the correct conclusion, it did not propose a clear standard to guide future cases. Two alternative approaches could be adopted: (1) ancillary versus significant services; or (2) comparative value of property and services. These alternatives will provide clearer guidelines and enable courts to reach more consistent results.

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