Taxability of Canned Software in California: The Nortel Dilemma

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

It has been over a year since the California Court of Appeal held that Nortel's licensing of software used to operate telephone switch hardware was exempt from sales and use tax as a transfer of intangible personal property pursuant to a technology transfer agreement, also invalidating regulations that excluded prewritten software from sales tax exemption. In this article, attorneys from Reed Smith LLP discuss the tax implications for prewritten software in California, and note the recent attempts by the California State Board of Equalization to limit the scope of the Nortel decision.