gas, or potable water produced by the taxpayer in the United States; 4.construction of real property performed within the United States where the taxpayer is engaged in actively conducting a construction trade or business in the ordinary course of that business; and 5. engineering or architectural services performed within the United States where the taxpayer is engaged in actively conducting an engineering or architectural trade or business and in the ordinary course of that business provides such services with respect to construction of real property with the United States. However, domestic production gross receipts specifically do not include gross receipts derived from the sale of food or beverages at a retail establishment, from the transmission or distribution of electricity, natural gas, or potable water, or from the lease, rental, sale, exchange, or other disposition of land. Effect The overall effect of the provision is to encourage domestic production. While this might seem to be a quite different goal than that of the provision it replaced, in theory, increased domestic production should indirectly lead to increased exports as the domestic demand is satisfied. While the QPAI deduction constitutes the United States government forgoing revenue which would otherwise be available to it, it should not run afoul of the same WTO rules because the availability of the deduction is not conditioned on export performance. Every business in the manufacturing sector, whether small or large, should consider the manufacturing deduction under IRC § 199. While section 199 comes with a complex set of rules, it nonetheless represents a valuable tax break for businesses that perform domestic manufacturing and certain other production activities. However, businesses should weigh its benefit against the cost of calculating and supporting it. For tax years beginning in 2010 and thereafter, the benefit is fully phased in at 9% of income from qualified production activities, so more businesses may now find the effort worthwhile. References Notes 26 U.S.C. 199. 26 U.S.C. 114 (repealed). United States – Tax treatment for "Foreign Sales" Corporations, Report of the Appellate Body (WT/DS108/AB/RW) Donaldson, Samuel A.; Federal Income Taxation of Individuals (Second Edition). 26 U.S.C. 199(a)(1). 26 U.S.C. 199(a)(2). 26 U.S.C. 199(c)(1). 26 U.S.C. 199(c)(4)(A)(i)(I). 26 U.S.C. 199(c)(4)(A)(i)(II)and 26 U.S.C. 199(c)(6). 26 U.S.C. 199(c)(4)(A)(i)(III). 26 U.S.C. 199(c)(4)(A)(ii). 26 U.S.C. 199(c)(4)(A)(iii). 26 U.S.C. 199(c)(4)(B). External links 20% QBI Deduction Calculator Taxation in the United States