Ezel / Tax Rulings / CA

Which acquired business assets were taxable: designs, drawings, customer lists, patents, or goodwill?

Short answer Designs and drawings were taxable tangible property, measured by their reasonably allocated price. Customer lists, patents, and goodwill were intangibles, but a later source note says a patent could be taxable if necessary to operate acquired machinery or equipment.
State
CA
Ruling
Annotation 540.0240
Tax type
Sales and Use Tax
Issued
1984-06-07
Issued by
California State Board of Equalization
Requested by
A California purchaser of part of an out-of-state corporation's business and assets (identity redacted)
Topics
business asset purchase customer list patents goodwill
Source
View Original PDF

Apply this to your situation

This page answers the general question as of 1984. Ask about yours and see what current California tax law says, with citations.

Currency note: this ruling is from 1984
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This official source contains a California State Board of Equalization Associate Tax Counsel letter dated August 10, 1966, plus a June 7, 1984 agency note qualifying the patent analysis. The later note says the purchase-price portion attributable to a patent would also be taxable when the patent was necessary to operate machinery or equipment acquired in the transaction. This page uses the controlling 1984 note date and preserves the original allocation rule. Another taxpayer should not treat this historical staff guidance as binding and should check current asset-purchase, design, drawing, customer-list, patent, goodwill, machinery, allocation, sales-tax, and use-tax rules. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

A California purchaser acquired part of an out-of-state corporation's business. The assets included designs, drawings, customer lists, and patents valued together at $29,679, plus goodwill valued at $1,000.

The 1966 letter classified designs and drawings as tangible personal property subject to use tax on the reasonably attributable portion of the purchase price. It classified patents, customer lists, and goodwill as intangible and therefore nontaxable.

The official source appends a June 7, 1984 qualification: the amount attributable to a patent would also be subject to use tax if the patent was necessary to operate machinery or equipment purchased in the same transaction. This later note controls the patent caveat.

Citations and references

  • Business Taxes Law Guide Annotation 295.0620, cited in the appended 1984 note

Source

Original ruling text

540.0240

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
August 10, 1966

Attention:
Gentlemen:
It is our understanding, from your letter of July 21, 1966, that you recently purchased a portion of the business and assets of a corporation outside this state. Included in those assets were designs, drawings, customer lists, and patents valued by the seller at $29,679, and goodwill valued at $1,000. In our opinion, the designs and drawings are tangible personal property. Accordingly, the designs and drawings are subject to use tax, measured by the portion of the purchase price reasonably attributable thereto. It is our further opinion that the patents, customer lists, and goodwill are intangibles. Accordingly, the portion of the purchase price reasonably attributable to these items is not subject to the tax. Very truly yours,

George A. Trigueros
Associate Tax Counsel

The part of the purchase price attributable to the patent would also be subject to use tax if the patent was necessary to operate machinery or equipment that was also purchase. See Anno. 295.0620. 6/7/84. D. J. Hennessy

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