Lucent Techs., Inc. v. State Bd. of EqualizationAnnotate this Case
The manufacturer sells telecommunications equipment to telephone companies, which pay for the equipment, written instructions on using the equipment, a copy of the computer software that makes the equipment work, and the right to copy that software onto the equipment’s hard drive and use the software to operate the equipment. An almost identical transaction was previously found to satisfy the requirements of California’s technology transfer agreement statutes (Rev. & Tax. Code 6011(c)(10) & 6012(c)(10)), so that the manufacturer was responsible for paying sales taxes only on tangible portions of the transaction (equipment and instructions), but not the intangible portions (software and rights to copy and use it). The State Board of Equalization nonetheless assessed a sales tax. The manufacturer paid the taxes and sought a refund. The court of appeal held that the Board’s assessment of the sales tax was erroneous. The manufacturer’s decision to give the telephone companies copies of the software on magnetic tapes and compact discs (rather than over the Internet) does not turn the software or the rights to use it into “tangible personal property” subject to the sales tax.