California PROPERTY - Computer Software
The portion of a computerized medication dispensing system which represented the value of the system's processing software was not subject to taxation, even though the processing software had been bundled (preinstalled) into the system at the time of purchase. California law and regulations recognize a distinction between the basic operational software that is necessary to a computer's functioning and the processing software that performs specific applications. After a careful examination of these provisions, the court found that while bundling is a precondition of making operational software taxable, it will not make processing software taxable. There is a presumption that all bundled software is taxable when a computer and software is sold at a single price, but a taxpayer can partially rebut this presumption by showing that some of the bundled software is processing software and therefore exempt. In the present case, the taxpayer established that 90% of the system's cost represented non-taxable processing software. (Cardinal Health 301, Inc. v. County of Orange, Court of Appeal of California, Fourth District, Division 3, Dkt. No. G039342, 09/30/2008. )