California Code of Regulations › Title 18 - Public Revenues › Division 2 - California Department of Tax and Fee Administration- Business Taxes (State Board of Equalization- Business Taxes, See Ch. 6 and 9.9) › Chapter 4 - Sales and Use Tax › Article 1 - Service Enterprises › Section 1507 - Technology Transfer Agreements

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) Definitions.
(1) "Technology transfer agreement" means an
				  agreement evidenced by a writing (e.g., invoice, purchase order, contract,
				  etc.) that assigns or licenses a copyright interest in tangible personal
				  property for the purpose of reproducing and selling other property subject to
				  the copyright interest. A technology transfer agreement also means a written
				  agreement that assigns or licenses a patent interest for the right to
				  manufacture and sell property subject to the patent interest, or a written
				  agreement that assigns or licenses the right to use a process subject to a
				  patent interest.
A technology transfer agreement does not mean an agreement
					 for the transfer of any tangible personal property manufactured pursuant to a
					 technology transfer agreement, nor an agreement for the transfer of any
					 property derived, created, manufactured, or otherwise processed by property
					 manufactured pursuant to technology transfer agreement.
Example No. 1: Company X holds a copyright in certain
					 tangible artwork. Company X transfers (temporarily or otherwise) its artwork to
					 Company Y and, in writing, transfers (temporarily or otherwise) a copyright
					 interest to Company Y authorizing it to reproduce and sell tangible personal
					 property subject to Company X's copyright interest in the artwork. Company X's
					 transfer of artwork and a copyright interest to Company Y constitutes a
					 technology transfer agreement. Company Y's sales of tangible personal property
					 containing reproductions of Company X's artwork do not constitute a technology
					 transfer agreement.
Example No. 2: Company X holds patents for widgets and the
					 process for manufacturing such widgets. Company X, in writing, transfers
					 (temporarily or otherwise) its patent interests to sell widgets and the process
					 used to manufacture such widgets to Company Y. Company X's transfer of its
					 patent interests to Company Y constitutes a technology transfer agreement.
					 Company Y's sale or storage, use, or other consumption of any widgets that it
					 manufactures does not constitute a technology transfer agreement. Company Y's
					 sale or storage, use, or other consumption of any tangible personal property
					 used to manufacture widgets also does not constitute a technology transfer
					 agreement.
Example No. 3: Company X manufactures and leases a patented
					 medical device to Company Y. As part of the lease of the medical device,
					 Company X also transfers to Company Y, in writing, a separate patent interest
					 in a process external to the medical device that involves the use, application
					 or manipulation of the medical device. Company X charges a monthly rentals
					 payable for the equipment as well as a separate charge for each time the
					 separate patented process external to the medical device is performed by
					 Company Y. Company X's lease of the medical device to Company Y to perform the
					 separately patented process is not a technology transfer agreement and tax
					 applies to the entire rentals payable for the medical equipment. Company X's
					 transfer of its separate patent interest for the right to perform the separate
					 patented process external to the medical device is a technology transfer
					 agreement. Company X's separate charges to Company Y for the right to perform
					 the separate patented process external to the medical device are not subject to
					 tax provided they relate to the right to perform the separate patented process,
					 are not for the lease of the medical device, and represent a reasonable charge
					 for the right to perform the separate patented process external to the medical
					 device. Where the separate charges for the right to perform the separate
					 patented process relate to the patented technology embedded in the internal
					 design, assembly or operation of the medical device, Company X's separate
					 charges for the right to perform the separate patented process are not pursuant
					 to a technology transfer agreement and are instead part of the rentals payable
					 from the lease of the medical device.
(2) "Copyright interest" means the exclusive
				  right held by the author of an original work of authorship fixed in any
				  tangible medium to do and to authorize any of the following: to reproduce a
				  work in copies or phonorecords; to prepare derivative works based upon a work;
				  to distribute copies or phonorecords of a work to the public by sale or other
				  transfer of ownership, or by rental, lease, or lending; to perform a work
				  publicly, in the case of literary, musical, dramatic, and choreographic works,
				  pantomimes, and motion pictures and other audiovisual works; to display a
				  copyrighted work publicly, in the case of literary, musical, dramatic, and
				  choreographic works, pantomimes, and pictorial, graphic, or sculptural works,
				  including the individual images of a motion picture or other audiovisual work;
				  and in the case of sound recordings, to perform the work publicly by means of a
				  digital audio transmission. For purposes of this regulation, an "original work
				  of authorship" includes any literary, musical, and dramatic works; pictorial,
				  graphic, and sculptural works; motion pictures and other audiovisual works;
				  sound recordings, including phonograph and tape recordings; and architectural
				  works represented or contained in tangible personal property.
(3) "Patent interest" means the exclusive
				  right held by the owner of a patent issued by the United States Patent and
				  Trademark Office to make, use, offer to sell, or sell a patented process,
				  machine, manufacture, composition of matter, or material. "Process" means one
				  or more acts or steps that produce a concrete, tangible and useful result that
				  is patented by the United States Patent and Trademark Office, such as the means
				  of manufacturing tangible personal property. Process may include a patented
				  process performed with an item of tangible personal property, but does not mean
				  or include the mere use of tangible personal property subject to a patent
				  interest.
(4) "Assign or license"
				  means to transfer in writing a patent or copyright interest to a person who is
				  not the original holder of the patent or copyright interest where, absent the
				  assignment or license, the assignee or licensee would be prohibited from making
				  any use of the copyright or patent provided in the technology transfer
				  agreement.