California Revenue & Taxation Code Section 6010.9: Taxability of Custom Computer Software

For purposes of the California sales and use tax law, a “sale” and “purchase” do not include the design, development, writing, translation, fabrication, lease or transfer for a consideration of title or possession of a custom computer program. An issue that often arises with respect to a custom computer program is whether such program is deemed a performance of service, versus a sale or purchase of tangible personal property. In addition, it is often difficult to determine how much “customization” is necessary to constitute a custom computer program.

(The remainder of this article can be accessed in the June 2006 edition of Lexis California Tax Practice Insights.)