California trial court addresses income sourcing of software license receipts, inclusion of intangible property

Royalties received from the license of canned software to original equipment manufacturers are treated as income from the sale of tangible personal property and must be sourced to the location of the purchaser, the California Superior Court ruled. In addition, the value of intangible personal property may not be included in the property factor absent a taxpayer’s ability to show that such modification of the standard property factor is necessary to properly reflect income earned in the state. [Microsoft Corporation v. Franchise Tax Board, Cal. Sup. Ct., San Francisco Cty., Statement of Decision, No. CGC 08-471260, February 17, 2011].