United States

California: Update on Regulatory Changes in Light of the Lucent and Nortel Decisions

Oct 31, 2016
From KPMG TaxWatch

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Last year in Lucent Technologies Inc. v. State Board of Equalization, a California Court of Appeal ruled, consistent with an earlier case, Nortel, that software licenses transferred with telecommunications switching equipment were exempt from sales and use tax. The court determined that the licenses were exempt because they were transferred as part of a Technology Transfer Agreement or TTA. A “TTA” is an “agreement under which a person who holds a patent or copyright interest assigns or licenses to another person the right to make and sell a product or to use a process that is subject to the patent or copyright interest.”

On January 20, 2016, the California Supreme Court declined to review Lucent and the State Board of Equalization (BOE) subsequently announced that it would begin considering how to implement the decision. This included amending certain California sales and use tax regulations (specifically, Regulation 1507, Technology Transfer Agreements and Regulation 1502, Computers, Programs and Data Processing) to clarify when an agreement for the transfer of software is a “technology transfer agreement” and to make the regulations consistent with Lucent.  The first interested parties meeting on Regulation 1507 was held on June 30, 2016. In a recent letter to parties interested in the rulemaking, the BOE explained that it has received extensive written comments on proposed regulatory changes and, due to the complexity of the issue, it will need additional time to review and address these comments. The BOE will distribute a second discussion paper on December 2, 2016 (responses due January 25, 2017) and will hold a second interested parties meeting on January 10, 2017. Please stay tuned to TWIST for future updates on these regulatory changes.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.