Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2017

Revenue and Taxation Code

Property Taxation

Part 2. Assessment

Chapter 5. Special Types of Property

Article 1. Generally

Section 995

995. Storage media for computer programs. Storage media for computer programs shall be valued on the 1972 lien date and thereafter as if there were no computer program on such media except basic operational programs. Otherwise, computer programs shall not be valued for purpose of property taxation.

As used in this section, storage media for computer programs may take the form of, but are not limited to, punched cards, tapes, discs or drums on which computer programs may be embodied or stored.

As used in this section, a computer program may be, but is not limited to a set of written instructions, magnetic imprints, required documentation or other process designed to enable the user to communicate with or operate a computer or other machinery.

History.—Added by Stats. 1972, p. 385, in effect June 23, 1972. Stats. 1973, Ch. 990, p. 1906, in effect January 1, 1974, substituted "lien date and thereafter" for "and 1973 lien dates" after "1972" in the first sentence; and Sec. 5 of the act provides no state payment to local government because of the act.

Note.—Stats. 1972, p. 385, provided: It is the intent of the Legislature that storage media, except basic operational programs, for computer programs shall be valued as if it had no computer program placed on it, except any basic operational programs. The Legislature recognizes that it is not in the public interest to value storage media for computer programs except as provided above. Basic operational programs, like law books or other standard reference books, have value which is measurable, but any other programs, like an attorney's brief, an engineer's calculations, or business records would be highly speculative.

It is the intent of the Legislature that only those basic operational programs which are presently being assessed and taxed in the various counties continue to be assessed and taxed during the effective period of this act. The value of other computer programs is not now subject to property tax, was not intended to be subject to property tax and shall not be subject to property tax, either directly or indirectly or through the inclusion of the value of such computer programs in evaluating related storage media for computer programs. Taxation of these expressions of creativity would be detrimental to research and an expansion of business activity within the state.

Construction.—The Board's 1996 amendment to Property Tax Rule 152 properly clarified what constitutes a computer's basic operational program, as opposed to other, separate programs, was a legitimate exercise of the Board's rulemaking authority, and it was consistent with the Legislature's intent in enacting this section to exempt basic computer programs from taxation. Hahn v. State Board of Equalization, 73 Cal.App.4th 985.

Construction.—"Application" (or "processing") programs, unlike "basic operational" software, are not to be valued for the purposes of property taxation even if the application software is embedded in the equipment. Property Tax Rule 152 allows taxpayers 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.