1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 MAY 25, 2011 9 --o0o--- 10 ITEM J RULEMAKING 11 ITEM 1 12 SALES AND USE TAX REGULATION 1507 13 TECHNOLOGY TRANSFER AGREEMENTS 14 ---o0o--- 15 16 17 18 19 20 21 22 23 24 Reported by: Juli Price Jackson 25 No. CSR 5214 26 27 28 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Michelle Steel Vice-Chairwoman 6 7 Betty T. Yee Member 8 9 George Runner Member 10 11 Marcy Jo Mandel Appearing for John 12 Chiang, State Controller (per 13 Government Code Section 7.9) 14 15 Diane G. Olson Chief, Board 16 Proceedings Division 17 18 Bradley Heller Tax Counsel 19 20 21 ---oOo--- 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 MAY 25, 2011 4 ---oOo--- 5 MS. OLSON: Our next item is J1, Sales and Use 6 Tax Regulation 1507, Technology Transfer Agreements. 7 MR. HORTON: Members, we have Mr. Bradley 8 Heller to present on this matter. 9 MR. HELLER: Good afternoon, Chairman Horton. 10 I'm Bradley Heller from the Board's Legal Department. 11 I am here to request your authorization to 12 delete a sentence from Sales and Use Tax Regulation 13 1507, Technology Transfer Agreements, pursuant to Office 14 of Administrative Law Rule 100. 15 The sentence provides that a technology 16 transfer agreement also does not mean an agreement for 17 the transfer of prewritten software and was recently 18 held to be invalid in a final published decision from 19 the California Court of Appeal. 20 As you may be aware -- 21 MR. HORTON: Can you state -- 22 MR. HELLER: Surely. 23 MR. HORTON: -- the case? 24 MR. HELLER" Oh, sure, the case was Nortel 25 Networks, Incorporated versus the State Board of 26 Equalization. 27 MR. HORTON: Thank you. 28 MR. HELLER: And, as you may be aware, some may 3 1 suggest or claim that the Nortel opinion now requires 2 the Board to review every software license involving 3 retail sales of prewritten or canned, mass marketed 4 software transferred via tangible storage media to 5 determine whether a technology transfer agreement 6 exists. 7 When a TTA -- excuse me, when a technology 8 transfer agreement exists, the Board is required to 9 exclude the amount charged for intangible personal 10 property -- excuse me, intangible -- yeah, personal 11 property from the taxable measure of the retail sale. 12 However, under subdivision (c)(10) of Revenue 13 and Taxation Code Section 6011 and 6012, a technology 14 transfer agreement is only subject to the exclusion when 15 the retailer of the tangible personal property is also 16 the holder of the relevant copyright or patent interest. 17 In the typical, off the shelf retail sale of 18 canned, mass marketed software, the retailer only holds 19 title to the tangible personal property, that is, the 20 shrinkwrapped box containing the disks on which the 21 software is stored, but does not hold any copyright or 22 patent interest in the software programs. 23 In other words, the retailer cannot transfer 24 any intangible personal property to the purchaser. 25 For this reason, the typical canned, mass 26 marketed software transaction can never be a technology 27 transfer agreement and everything the purchaser pays to 28 the retailer is subject to sales tax because the only 4 1 thing the retailer transfers to the purchaser is title 2 to the tangible personal property the purchaser 3 receives. 4 I can answer any questions you may have as 5 well. 6 MR. HORTON: Thank you very much. 7 Is there a motion, Members? 8 MS. STEEL: So moved. 9 MR. HORTON: Moved by Ms. Steel, second by 10 Ms. Yee. 11 MS. YEE: Yes. 12 MR. HORTON: Discussion, Members? 13 Hearing none, objection? 14 Without objection, such will be the order. 15 Thank you very much, Mr. Heller. 16 ---o0o--- 17 18 19 20 21 22 23 24 25 26 27 28 5 1 REPORTER'S CERTIFICATE. 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 MAY 25, 2011 I recorded verbatim, in shorthand, to the 10 best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the shorthand 12 writing into typewriting; and that the preceding pages 1 13 through 5 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: June 1, 2011 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 6