Income derived from domestic production that qualifies for reduced taxation. More specifically, qualified production activities income is the difference between the manufacturer's domestic gross receipts and aggregate cost of goods and services related to producing the domestic goods. This reduced tax is intended to reward manufacturers for producing goods domestically instead of overseas.
The IRS mandates that any domestic manufacturer of goods can exclude 6% of all income derived from goods production from income taxation in 2008 and 2009. The tax-free rate for QPAI increases to 9% in 2010.
This type of income does not include revenue generated from the restaurant industry, electricity or natural gas production or real estate transactions.