Nguyen & Maine: Branding Taxation

Xuan-Thao Nguyen (Indiana-Indianapolis) & Jeffrey A. Maine (Maine), Branding Taxation, 50 Ga. L. Rev. 399 (2016):

Brand advertising and enforcement represent a significant investment by most firms. Yet, surprisingly, little scholarship is devoted to the ideal tax regime that should govern investments in both brand building and brand enforcement. Current tax rules governing branding evolved in the absence of an appropriate legal framework. The result is a regime with incoherent tax distinctions that lack theoretical justification, suggesting that legislative or administrative changes are warranted. This Article concludes that the current tax treatment of ordinary brand advertising (expensing) serves legitimate goals--expensing stimulates economic growth, furthers administrative efficiency, and creates an even playing field between businesses that advertise their own brands and businesses that choose instead to license from others the right to use well-known trademarks.

However, current tax treatment of advertising campaigns (expensing) is fundamentally flawed: campaign expenditures, which strengthen, restore, or elevate the brand, should be analogized to costs of improvements to tangible property, which have long been considered nondeductible capital expenditures. This Article also concludes that the current tax distinction between trademark infringement claims and unfair competition claims is unjustified. If substance is to prevail in tax jurisprudence, litigation costs incurred in unfair competition claims should be capitalized to reflect that both claims are brought primarily to establish a taxpayer's trademark and not to recover income.