Knife Co. Can’t Deduct Licensing Costs on Taxes

(CN) - The Robinson Knife Manufacturing Co., which makes Pyrex and Oneida brand kitchen tools, cannot deduct the cost of licensing those trademarks, according to a ruling from the U.S. Tax Court.

Robinson claimed that the licensing agreements were indirect marketing costs, like advertising, and were deductible from federal income tax as normal business expenses.

But the Internal Revenue Service ruled that the royalties paid to Pyrex and Oneida must be capitalized as part of Robinson's inventory cost.

The tax court in Washington, D.C., agreed with the IRS, finding that the cost of the trademarks was an integral part of manufacturing the final product because without the trademark name on the utensils there would be no product.

Under Section 1.236A of the Income Tax Regulations, any expenditure incurred in the manufacture of a product must be included in computing the cost of inventory.

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