Laws, Regulations and Annotations


Business Taxes Law Guide – Revision 2023

Sales And Use Tax Court Decisions

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Lucent Technologies, Inc. v. State Board of Equalization … (2015)

When Licenses to Use Copyrighted or Patented Software are Transferred on Disposable Storage Media Pursuant to “Technology Transfer Agreements,” and the Storage Media is Not Physically Useful to the Purchaser’s Post- Transfer Use of the Software’s Copyrights and Patents (Apart From the Initial Download), Then Only the Portion of the Gross Receipts Attributable to the Storage Media is Subject to the Sales and Use Tax

A manufacturer of telecommunications equipment entered into contracts with telephone companies to sell switches, provide written instructions on how to install and run those switches, develop and produce a copy of the software necessary to operate those switches, and license the companies the right to copy the software onto their switches’ hard drives, and thereafter to use the software to operate the switches. The manufacturer thereafter transmitted the software to the companies on magnetic tapes or compact discs. The Board assessed sales tax on the full amount of the licensing fees paid under the contracts. In response, the manufacturer brought an action for refund of sales taxes attributable to the software and licenses to copy and use the software.

The trial court concluded that the manufacturer was obligated to pay sales taxes only on the portion of the gross receipts attributable to the switches, the written instructions, and the blank tapes and compact discs used to transmit the software, but ordered the Board to refund the balance of the sales taxes. The trial court also awarded court costs and reasonable litigation costs to the manufacturer.

The court of appeal affirmed the trial court judgment, and held that, in sales made pursuant to technology transfer agreements under sections 6011 and 6012 of the Revenue and Taxation Code, when licenses to use copyrighted or patented software are transferred on disposable storage media, and the storage media is not physically useful to the purchaser’s post-transfer use of such copyrights or patents, then only the portion of the gross receipts attributable to the storage media and written instructions is subject to the sales and use tax. Lucent Technologies, Inc. v. State Board of Equalization (2015) 241 Cal.App.4th 19.