Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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General Business Systems, Inc. v. State Board of Equalization . . . (1984)

Sales of Custom Computer Programs Were Nontaxable Services

Taxpayer transferred custom computer applications programs to its customers on punched cards between 1972 and 1976. The Board imposed sales tax on these sales under Sales and Use Tax Regulation 1502(f)(2) because the computer programs were transferred on tangible storage media, the punched cards which customers used to install the programs on their computers. The trial court ordered the Board to refund the taxes paid.

The court of appeal affirmed, and held that Regulation 1502(f)(2) was void as in excess of the Board's statutory authority. Revenue and Taxation Code Section 6010.9, enacted in 1982, provided that transfers of custom computer programs on tangible storage media are neither sales nor purchases under the Sales and Use Tax Law. The Legislature further declared that transfers of custom programs were non-taxable services, and that section 6010.9 was declaratory of existing law. The court held that the 1982 legislation supports the conclusion that the true object of the transfer of the custom programs on punched cards was the performance of services by the taxpayer. General Business Systems, Inc. v. State Board of Equalization (1984) 162 Cal.App.3d 50.