The California Department of Tax and Fee Administration (CDTFA) has recently provided clarification on the tax treatment of non-custom software sales in the state. According to the CDTFA, an agreement for the sale of non-custom software may be considered a technology transfer agreement (TTA) under state caselaw. This distinction is significant because if a taxpayer has paid California use tax on the purchase of non-custom software transferred under a TTA, they may be eligible to file a refund claim with the CDTFA for any overpaid use tax.
The CDTFA’s guidance comes in response to questions raised by taxpayers regarding the tax treatment of non-custom software sales. Non-custom software refers to pre-packaged software that is mass-produced and not specifically designed or modified for a particular customer. The tax treatment of non-custom software sales has been a subject of debate and confusion in the past, with taxpayers uncertain about whether such sales should be subject to use tax.
According to the CDTFA, an agreement for the sale of non-custom software may qualify as a TTA if it meets certain criteria. A TTA is defined as an agreement that involves the transfer of technology, including patents, copyrights, trademarks, trade secrets, or know-how, for consideration. The CDTFA explains that if a taxpayer can demonstrate that a TTA exists for the sale of non-custom software, and if they have paid California use tax on their purchase, they may be eligible to file a refund claim.
The CDTFA’s clarification provides some much-needed clarity for taxpayers who have been uncertain about the tax treatment of non-custom software sales. By recognizing that such sales may qualify as TTAs, the CDTFA is allowing taxpayers to potentially recover any overpaid use tax, providing them with a refund for the excess tax paid.
It is important to note that taxpayers who wish to file a refund claim for overpaid use tax on non-custom software sales transferred under a TTA must do so within the applicable statute of limitations. The statute of limitations for filing a refund claim is generally four years from the due date of the tax return or one year from the date the tax was paid, whichever is later. Therefore, taxpayers should ensure that they file their refund claims in a timely manner to avoid missing out on potential refunds.
The CDTFA’s guidance on the tax treatment of non-custom software sales is a welcome development for taxpayers in California. It provides much-needed clarity and allows taxpayers to potentially recover any overpaid use tax on such sales. By recognizing that non-custom software sales may qualify as TTAs, the CDTFA is ensuring that taxpayers are treated fairly and that they are not subjected to excessive taxation on these transactions.
In conclusion, the CDTFA’s recent guidance on the tax treatment of non-custom software sales is a positive step towards providing clarity and fairness for taxpayers in California. By recognizing that such sales may qualify as TTAs, the CDTFA is allowing taxpayers to potentially recover any overpaid use tax. Taxpayers who believe they may be eligible for a refund should consult with their tax advisors and consider filing a refund claim with the CDTFA within the applicable statute of limitations.
