At several recent meetings of research administrators, I have heard that
because of the tax consequences, royalty rates for resulting technology
should not be made a part of research funding agreements.  There are of
course, other reasons for not including royalty rates in research
agreements, but I am interested specifically in the tax implications.

Can someone give me some information on the tax liabilities that might be
incurred and/or the rulings or regulations that codify these liabilities?

If it helps, here is a specific example:
Sponsor A wishes to provide research funds to state University B to support
research in anti-cancer treatments.  At the time the agreement is made, it
is not clear whether the treatments developed might be mechanical, chemical,
or a combination of the two.  As a part of the research agreement, it is
specified that A will be entitled to an exclusive licensing option at a
royalty rate of Y.  Since the technology to be licensed is unknown at the
time of the research agreement, it is not known whether Y is a customary
royalty rate.
Using this example, would there be or could there be tax consequences (for A
or B) for this transaction?

Thank you for any input.

Michael J. Warnock, Director
Sponsored Program Administration
University of Missouri - Columbia
310 Jesse Hall
Columbia, MO  65211
ph. 573-882-4329       fax 573-884-4078

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