Qualified Production Activities Income is a class of income which is entitled to favored tax treatment under Section 199 of the United States Internal Revenue Code. History Former section 114 of the United States Internal Revenue Code excluded "extraterritorial income" which constituted "qualifying foreign trade income" under former section 941 from income. The effect of these provisions was a reduced tax burden in exchange for increased exports, creating an incentive for individuals and businesses within the United States to export. In August 2001, a panel of the World Trade Organization ruled that former section 114 of the United States Internal Revenue Code constituted a violation of the Agreement on Subsidies and Countervailing Measures as a prohibited export subsidy, and a WTO Appellate Body affirmed the finding in January 2002. The finding was based on the fact the provision resulted in the United States government forgoing revenue to which it was otherwise entitled and the fact the resulting subsidy was conditioned on export performance. The United States Congress repealed the exclusion in 2004. To offset the loss of the section 114 benefit, Congress enacted Section 199 regarding qualified production activities income. Mechanics Section 199 allows manufacturers to deduct nine percent of their "qualified production activities income" (QPAI) in 2010 and following years. The deduction is in the process of "phasing-in," with three percent of QPAI allowed as a deduction in 2005 and 2006, and six percent allowed in 2007-2009. The effect of the deduction is to reduce the rate of taxation on QPAI. QPAI is defined as the portion of taxpayer income which is equal to the excess of the taxpayer's domestic production gross receipts over the sum of the cost of goods that are allocable to such receipts, and other expenses, losses, or deductions which are properly allocable to such receipts. Domestic production gross receipts Domestic production gross receipts is defined in the provision as the gross receipts of the taxpayer derived from any lease, rental, license, sale, exchange, or other disposition of: 1. tangible personal property, computer software, or sound recordings manufactured, produced, grow, or extracted by the taxpayer in whole or significant part within the United States; 2. a qualified film, defined as a non-pornographic film where not less than 50 percent of the total compensation relating to production is compensation for services performed in the United States by actors, production personnel, directors, and producers; 3. electricity, natural