Articles Posted in Sales and Use Tax

As consumer products become more high tech, the line between computers and traditional devices has blurred. Even basic products, such as toothbrushes, alarm clocks, doorbells, smartphones, cameras, home security systems, printers and copiers now include technical software that enables new functionality options for the device. As a general principle, tangible personal property, but not intangibles or services, is subject to California Sales and Use Tax. Software “embedded” into a product has value distinct from the value of the rest of the device and that distinct (intangible) value is not subject to sales tax. On the heels of two recent taxpayer victories in the California Court of Appeal relating to taxation of software, this article discusses current developments on how to treat such embedded software for California sales (and use) tax purposes.

(The remainder of this article can be accessed in the January 2017 edition of the Journal of Multistate Taxation and Incentives.)

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.)

Pursuant to Cal. Rev. & Tax. Code Section 19306(a) a claim for refund typically must be filed within for years from the date the return was filed, four years from the last day prescribed for filing the return (determined without regard to any extension of time for filing the return), or one year from the date of the overpayment, whichever expired later. If six months elapses without any action upon a filed refund claim, the taxpayer generally may consider the claim disallowed or “deemed denied” and either appeal the claim to the State Board of Equalization (SBE) or file a suit for refund in court.

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

Taxpayers intending to change their residency for California personal income tax purposes should be aware that intent alone is insufficient to establish new residency. Moreover, intent coupled with physical acts of starting to move or transition to another state is also insufficient to establish new residency. The California courts have held if one is a resident of California, that person cannot be in California for “a temporary or transitory purpose” until that person’s acts as well as his or her intent show that he or she has moved out of California. That one may intend to move from California at some time in the future does not make that person someone who is in California for a temporary or transitory purpose. One is a resident for tax purposes until there are sufficient indicia of an actual change of such residence.

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

Pursuant to Cal. Rev. & Tax. Code Section 17041, a California resident is taxed on all income, from whatever sources derived. In contrast, Cal. Rev. & Tax. Code Sections 17041(b) and 17951 state that nonresidents and part-year residents of California are only taxable on income from sources within California. Exactly what income has a California “source” is the subject of much debate and legislative action.

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

Pursuant to Cal. Rev. & Tax. Code Section 17014(a), a resident is an individual who (1) is in California for “other than a temporary or transitory purpose” or (2) is “domiciled” in California but is outside California for “a temporary or transitory purpose.” Presence within California for more than nine months of a taxable year creates a rebuttable presumption of California residence under Cal. Rev. & Tax. Code Section 17016. However, no presumption of nonresidency arises when an individual spends less than nine months of the year in California.

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