NORTEL NETWORKS INC v.STATE BOARD OF EQUALIZATION
This appeal requires an interpretation of the Sales and Use Tax Law. (Rev. & Tax. Code, § 6001 et seq.)[1] Nortel Networks Inc. sells telephone switching equipment in California. Income from switch hardware sales is indisputably taxable by the State of California. The question is whether sales tax is imposed on the software that Nortel licenses to operate the switching equipment. The State Board of Equalization (the Board) determined that Nortel owes sales tax on software it licensed between January 1994 and December 1997. Nortel paid the tax then sued for a refund.
We conclude that the software licensed by Nortel is exempt from sales tax under the Technology Transfer Agreement (TTA) statutes because it (1) is copyrighted, (2) contains patented processes, and (3) enables the licensee to copy the software, and to make and sell products--telephone calls--embodying the patents and copyright. (§§ 6011, subd. (c)(10)(D), 6012, subd. (c)(10)(D).) The Board's attempt to limit the scope of the TTA statutes by excluding prewritten computer programs is an invalid exercise of its regulatory power. The TTA statutes encompass â€
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