Taxing Facebook Code: Debugging the Tax Code and Software

Nguyen and Maine examine the intersection of intellectual property law and tax policy as applied to software, using Facebook as a case study. Software presents unique challenges within intellectual property's established framework because it can encompass combinations of copyrights, trade dress, patents, and trade secrets. Facebook illustrates how software is inherently code—thousands of engineers work endlessly designing, constructing, writing, integrating, debugging, and testing code to implement social networking. The article analyzes software within intellectual property's doctrinal framework, examining how copyright, trade dress, patents, and trade secrets apply to software. Part II considers how software innovation presents challenges given its multifaceted IP protections. Part III examines federal and state tax systems governing software, explaining how fitting software within current tax schemes presents unique challenges because software contains both tangible and intangible elements subject to varying protections and rapidly evolving into different products. The article also highlights certain tax preferences for software innovation. Part IV critiques current tax approaches to software, identifying incongruities in tax distinctions for software that run counter to sound tax principles of fairness and efficiency, and suggests legislative changes may be warranted to address these flaws and improve tax design's ability to account for software innovation's spillover effects.

Topics: Intellectual Property · Tax Law

Keywords: software taxation · intellectual property · copyright · patents · Facebook · tax code · software innovation · trade secrets