Page 11 - Tax Reforms - Businesses

Inventory Sourcing (3/9)

Inventory Sourcing

• Income from the sale of inventory by a domestic
corporation generally is sourced based on where
title and risk of loss to the property pass to the
buyer.
• Income from the sale of inventory where title
passes outside the U.S. generally would-be foreign
source income. If a domestic corporation
manufactures inventory in the U.S. and passes title
and risk of loss outside the U.S., prior law provided
that 50% of the income would be U.S. source and
50% would be foreign source. The Tax Cuts and
Jobs Act, or tax reform, modified this rule to
provide that 100% of the income from the sale of
property manufactured by the corporation in the
U.S. is U.S. source, regardless of where the title
passes.
• If a domestic corporation manufactures inventory
outside the U.S., 100% of the income from its sale
would be foreign source, regardless of where title
passes and regardless of whether the inventory is
sold to U.S. or foreign customers. If, instead, the
domestic corporation purchases inventory that it
sells, the sales income would be sourced based on
where title and risk of loss pass to buyers.

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