CA Court of Appeals Rules Licensed Software Exempt from CA Sales and Use Tax

For many years retailers and businesses have been paying California state sales and use taxes on transfers of prewritten software. California tax authorities have claimed that taxes were payable on such transfers, but in the recent case of Nortel Networks Inc. v. State Board of Equalization, the CA Court of Appeals ruled that a license for prewritten software is not subject to state sales and use tax. The ruling applied to a license subject to a patent or copyright entered into pursuant to a technology transfer agreement (TTA).

CA taxpayers who have paid sales and use tax on TTA transactions in the past or who have current TTA arrangements in place should review the tax payments they have made to determine whether the taxes were properly due and payable. There is an refund opportunity for taxpayers that discover taxes were improperly paid. Refund claims must be made before the statute deadline for the applicable tax year (generally within 3 years of the return due date); don’t let your refund opportunity lapse!

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Roger Royse
rroyse@rroyselaw.com

Roger Royse, the founder of the Royse Law Firm, works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries. Roger regularly advises on complex tax structuring, high stakes business negotiations and large international financial transactions. Practicing business and tax law since 1984, Roger’s background includes work with prominent San Francisco Bay area law firms, as well as Milbank, Tweed, Hadley and McCloy in New York City.
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