On April 27, 2011, the California Supreme Court denied the State Board of Equalization’s (SBE) petition for review of Nortel Networks v. State Board of Equalization, 191 Cal.App.4th 1259 (2d. Dist. 2011), paving the way for refund claims based on the Court of Appeal’s decision (for a full discussion of Nortel, click here). 

Taxpayers may be entitled to refunds if they paid sales tax on intangible property transferred with tangible personal property, so long as they satisfied the requirements of a technology transfer agreement (TTA). To be eligible for a sales tax exemption under a TTA, taxpayers must prove that:

  1. Intangible property was transferred with tangible personal property; 
  2. The intangible property transferred was subject to a patent or copyright interest; 
  3. The intangible property transferred enabled the licensee to make and sell products subject to the patent or copyright interest; and 
  4. The TTA separately stated a reasonable price for the tangible personal property.

In Nortel, the Court of Appeal partially invalidated the regulation that had excluded agreements involving prewritten software from the definition of a TTA, holding that the statute contained no such limitation.

Taxpayers who transferred a patent or copyright interest pursuant to a TTA and who paid tax on the value of the intangible property transferred should consider filing refund claims under Nortel.