Is money from licensing our company data taxed as income or capital gain?

It depends on what the contract transfers and how your company is set up. As a general US rule, royalties are ordinary income, while a sale or exchange of a capital asset can produce capital gain. Which one your deal is, and what you owe, is for your own CPA or tax attorney to decide from the contract.

Is it ordinary income or capital gain?

Generally, royalties are ordinary income and gain on selling a capital asset can be capital gain; which one your payments are depends on what the contract transfers. These general rules are where your CPA starts, not an answer for your deal, and none of them mentions business records licensed for AI training.

Payments for using property. The tax code lists royalties as gross income in their own right, separately from gains on dealings in property (26 U.S.C. §61(a)). The IRS says royalties from copyrights, patents, and oil, gas and mineral properties “are taxable as ordinary income”.
Selling property. Capital gain is gain from the sale or exchange of a capital asset, and it is long-term when the asset was held for more than a year (§1222). For individuals, the IRS lists rates of 0%, 15% or 20% on most net long-term capital gain, depending on taxable income (IRS Topic 409, reviewed September 24, 2026).
Not everything a company owns is a capital asset. The definition leaves out inventory and depreciable business property. It also leaves out “a letter or memorandum, or similar property” when held by the taxpayer it was prepared or produced for (§1221(a)(3)). Whether that wording reaches a company’s archive of email and documents is a question to put to your adviser.

The contract sets which side of the line you start from:

If the agreement is a license and your company keeps ownership, which is how most programs describe their deals (Am I selling my data or licensing it?), ask your CPA whether the payments are royalties.
If it assigns or transfers “all right, title and interest”, ask whether it is a sale or exchange, whether the records are a capital asset in your company’s hands, and how long the company has held them.
If the money is spread out or tied to use, as with a revenue share, do not assume that settles it. For a patent transferred by an individual “holder” (the individual whose efforts created it, or certain other individuals who paid that creator before the invention was reduced to practice), the Code treats a transfer of all substantial rights as the sale of a capital asset held for more than a year even when the payments are made periodically over the buyer’s use or depend on that use (§1235(a)–(b)). That rule covers only patents held by such individuals; it does not reach a company’s data.

What will my CPA ask about the contract?

Mostly what your company handed over and what it kept. For patents, and for software and other digital content, the tax rules ask whether “all substantial rights” passed to the other side. Under the patent regulation, a grant does not transfer all substantial rights if it is limited to part of the country that issued the patent, limited in time to less than the patent’s remaining life, limited to some fields of use, or covers fewer than all the claims; keeping a right to end the transfer at will also means keeping a substantial right (Treas. Reg. §1.1235-2(b)). For digital content, Treasury applies the same idea for certain purposes: a transfer of a copyright right is a sale if all substantial rights pass, and a license if they do not (Treas. Reg. §1.861-18(f)).

Those rules were written for patents and digital content, not for business records, and whether any of them applies to your license is your CPA’s call. They do explain why each of these terms matters to the answer:

Term in the offer	The tax question it bears on
Grant: “license” or “assign”, “all right, title and interest”	Payment for the use of property, or a sale of it
Exclusivity	Whether the company kept the right to license the same records to others
Term	Whether the grant ends, or is perpetual
Permitted uses	Whether the buyer may use the records for anything, or only for named purposes
Termination	Whether either side can end the license at will
Payment structure	When the income is taxed: one payment, milestones or a revenue share
Tax clause	Which taxes each side bears

Am I selling my data or licensing it? explains the grant, exclusivity, term and permitted-use clauses as contract terms, and How long until I get paid? the payment structures.

Some providers’ published terms leave tax to the agreement or to you. Replay’s terms say “Any fees, licensing proceeds, payment schedules, and applicable taxes are set out in the separate agreement” for each engagement (updated September 24, 2026). FileYield’s terms say “Taxes are your responsibility”, including any sales, use or similar taxes on sales through its service (updated September 22, 2026).

Does it matter if we’re an S corp, an LLC or a C corp?

Yes. Under the general federal rules, the structure decides who pays federal income tax on the payment and whether its character, ordinary or capital, carries through to the owners.

How the company is taxed	Who reports the income	What carries through
C corporation	The corporation, which pays tax at 21% of its taxable income (§11(b))	Nothing passes through to the owners’ returns
S corporation	The shareholders, on their pro rata shares (§1366(a))	The item keeps the character it had for the corporation (§1366(b))
Partnership, including an LLC taxed as one	The partners, on their distributive shares (§702(a))	Character is set as if the partnership realized the item directly (§702(b))

One case to raise if your company is an S corporation that used to be a C corporation. The Code counts royalties as “passive investment income” (§1362(d)(3)(C)), although Treasury regulations leave out royalties earned in the ordinary course of a business of licensing property, where the corporation created the property or performed significant services or incurred substantial costs in developing or marketing it (Treas. Reg. §1.1362-2(c)(5)(ii)(A)). If the corporation still has accumulated earnings and profits and that income is more than 25% of its gross receipts for the year, the corporation itself owes a tax on part of it (§1375(a)); three consecutive such years end the S election (§1362(d)(3)(A)). Whether a data license payment counts as a royalty for this test is part of the same question for your CPA.

If we’re paid over time or in milestones, when is it taxed?

That depends on your company’s accounting method and on whether the deal is a sale. IRS Publications 538 and 537 set out the general timing rules:

Cash method. Income goes in the year you “actually or constructively received” it.
Accrual method. An amount generally goes in the year the “all events test” is met, and an advance payment is generally reported in the year it is received, with a limited election to defer part of it to the next year (Publication 538).
A sale paid in later years. “An installment sale is a sale of property where you receive at least one payment after the tax year of the sale”, and when the total price cannot be fixed by the end of the year of sale, as with payments that depend on future results, Publication 537’s contingent payment rules apply. Those rules are for sales of property.

Programs pay once, in milestones or as a revenue share, and How long until I get paid? lists each program’s published trigger and timing. Give your CPA the payment schedule along with the agreement.

Will the buyer send us a 1099?

Possibly, depending on how your company is organized. As of October 2026, the IRS instructions for Form 1099-MISC tell payers to report “gross royalty payments (or similar amounts) of $10 or more” in box 2, and say payments to a corporation, including an LLC treated as a C or S corporation, are generally not reportable, apart from listed exceptions such as medical payments and payments to attorneys.

A payer that has to file will usually ask first for a Form W-9, the form you use to give your taxpayer identification number to whoever files the information return. A 1099 shows how the payer reported the payment. Your CPA still decides the treatment on your return from the agreement.

Do we owe state tax on it too?

There is usually a state question as well, under each state’s own rules. Texas, for example, imposes a franchise tax, “a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas”, with a no-tax-due threshold of $2,650,000 for 2026 reports. Ask your CPA how the payment counts in each state where the company files, and on the owners’ own returns in states that tax individual income.

Who should I talk to, and when?

Your own CPA or tax attorney, before you sign, because once the agreement is signed, changing its wording needs the other side’s agreement. The IRS notes there are “various types of tax return preparers, including certified public accountants, enrolled agents, attorneys, and many others who don’t have a professional credential”; for a question that turns on contract wording, have your CPA and the lawyer reviewing the agreement read the draft together.

Bring these to the first meeting:

The offer or draft agreement, with its schedules.
How the company is taxed (C corporation, S corporation, partnership) and, for an S corporation, whether it was ever a C corporation.
Its accounting method, cash or accrual.
The states where it files.
Which records the license covers and how long the company has held them. A data inventory already sets this out.
The payment schedule, and anything already received.

If you may sell the company in the next few years, say so; a buyer will ask about the license too (If we license our data now, does it affect selling the company later?).