This change was important because it confirmed that, as a general rule, the value of tangible and intangible property should be calculated separately, with only the material part subject to turnover tax. But more importantly for planning, a definition that is not well respected, hidden in the fine print: a brand new concept known as a “technology transfer agreement” and for which a distribution is mandatory. Example #2: Company X holds patents for widgets and the manufacturing process of those widgets. Company X transfers in writing (temporarily or otherwise) its patent interests in the sale of widgets and the process of making such widgets to Company Y. The transfer of its patent shares by Company X to Company Y constitutes a technology transfer agreement. The sale or storage, use or consumption of widgets produced by Company Y does not constitute a technology transfer agreement. The sale or storage, use or consumption of personal material items used for the manufacture of widgets by Company Y also does not constitute a technology transfer agreement. The State argued that the fact that software licenses were made available in tangible form meant that the intellectual property rights transferred should be taxable. The court explained, however, that the California legislature had adopted a special regime for software or intangible assets transferred pursuant to the TTAs. In a strong victory for common sense, the judge rejected in depth the arguments of the SBE.
The definition of an TTA is not ambiguous, uncertain or ambiguous, he said, and the clear importance of the statute must be respected. In addition, the judge found that SBE`s own legislative analysis authority had concluded, prior to the adoption of the amendment, that the broad legal definition of an TTA would apply to works of art. The argument that it is necessary to transfer something “technological” in order for the agreement to qualify as an TTA was also rejected on the basis of the mere wording of the law. The sale of tangible personal property by Company Y, which contains reproductions of Company X`s works of art, does not constitute a technology transfer agreement. However, in recent times, the SBE has gone too far – it has tried to collect taxes on transactions that are clearly exempt under current legislation. Their objective: to transfer intangible goods. (3) Specific applications. The tax applies to the sale or storage, use or consumption of works of art and commercial photographs, in accordance with a technology transfer agreement in accordance with Regulation 1540, to advertising agencies, commercial artists and designers….