Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2010
 

Revenue and Taxation Code

Property Taxation

Part 2. Assessment

Chapter 5. Special Types of Property

Article 1. Generally

Section 995.2

995.2. Basic operational program. The term "basic operational program," as used in Section 995, means a computer program that is fundamental and necessary to the functioning of a computer. A basic operational program is that part of an operating system including supervisors, monitors, executives, and control or master programs that consist of the control program elements of that system.

For purposes of this section, the terms "control program" and "basic operational program" are interchangeable. A control program, as opposed to a processing program, controls the operation of a computer by managing the allocation of all system resources, including the central processing unit, main storage, input/output devices and processing programs. A processing program is used to develop and implement the specific applications that the computer is to perform. Its operation is possible only through the facilities provided by the control program. It is not in itself fundamental and necessary to the functioning of a computer.

Excluded from the term "basic operational program" are processing programs, which consist of language translators, including, but not limited to, assemblers and compilers; service programs, including but not limited to, data set utilities, sort/merge utilities, and emulators; data management systems, also known as generalized file-processing software; and application programs, including, but not limited to, payroll, inventory control, and production control. Also excluded from the term "basic operational program" are programs or parts of programs developed for or by a user if they were developed solely for the solution of an individual operational problem of the user.

A control program, as used in this section, includes the following functions: selection, assignment, and control of input and output devices; loading of programs, including selection of programs from a system resident library; handling the steps necessary to accomplish job-to-job transition; controlling the allocation of memory; controlling concurrent operation of multiple programs or computers; and protecting data from being inadvertently destroyed as a result of operator program error.

History.—Added by Stats. 1973, Ch. 990, p. 1907, in effect January 1, 1974. Sec. 5 of the act provides no state payment to local government because of the act. Stats. 1998, Ch. 583 (SB 1103), in effect January 1, 1999, deleted "and for purposes of Section 995.1," after "Section 995" in the first sentence of the first paragraph; deleted "; however," after "control program" in the fourth sentence and created the fifth sentence with the balance of the former fourth sentence after "program" in the second paragraph; deleted "such" after "includes" in the first sentence of the fourth paragraph; and substituted "that" for "which" throughout text. Stats. 1999, Ch. 83 (SB 966), in effect January 1, 2000, added a comma after "Section 995" in the first sentence and added a comma after "executives" in the second sentence of the first paragraph; added a comma after "section" in the first sentence of the second paragraph; added a comma after the first "including", and substituted "programs, including, but not limited to, payroll, inventory control," for "programs including but not limited to payroll, inventory control" after "and application" in the first sentence of the third paragraph; substituted "the following functions: selection, assignment," for "functions as: selection, assignment" after "includes" in the first sentence of the fourth paragraph.

Construction.—Bundling by itself is not dispositive of whether application software included in a bundled programming package was taxable. Cardinal Health 301, Inc. v. County of Orange, 167 Cal.App.4th 219.

Burden of Proof.—Pursuant to Property Tax Rule 152, a taxpayer is allowed to demonstrate that a portion of the value of a computer represents nontaxable application software despite the fact that it came bundled inside the computer when the customer bought or leased it. Cardinal Health 301, Inc. v. County of Orange, 167 Cal.App.4th 219.

Medical Equipment.—An assessor, when valuing medical equipment, must deduct or offset any proprietary computer software embedded in the medical equipment. "Application" software, unlike "basic operational" software, is not to be valued for purposes of property taxation. Cardinal Health 301, Inc. v. County of Orange,167 Cal.App.4th 219.