Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Simplicity Pattern Co. v. State Board of Equalization . . . (1980)

Transfer of Master Film Negatives Was a Sale of Tangible Personal Property

Plaintiff filed an action for a refund of sales tax paid on the transfer of film negatives and master recordings used to make audio visual materials for training medical personnel. The transfer was part of a sale by plaintiff of the segment of its business devoted to producing and marketing such materials. The transfer consisted of an exchange of the assets and name of its wholly owned subsidiary for common stock of the transferee's parent. The subsidiary dissolved after the exchange, and plaintiff assumed its liability.

Plaintiff contended that the transfer of certain master film negatives to be used for reproduction purposes involved the sale of intangible property; that the transfer was a sale for resale, since the masters were to be used to make copies for resale; and that the transfer was exempt as a merger. The trial court entered judgment in favor of the Board. The Supreme Court affirmed, holding that the sale was a sale of tangible personal property; that the tax on the transfer was measurable by what plaintiff received for the property as a whole, without deduction for amounts paid for intellectual or other intangible components; that the sale was not a sale for resale, since the primary purpose of selling the film negatives and master recordings was to use them in manufacturing the final product rather than to incorporate them into that product; and that the transfer did not meet the requirements of a tax-free merger. Simplicity Pattern Company v. State Board of Equalization (1980) 27 Cal.3d 900.