The hot button issue of quantifying and proving the costs of non-taxable embedded software within equipment for the purpose of property taxation has been debated in the state of California for years, but is now really beginning to gain the momentum needed to provide clarity and uniformity.
Non-taxable embedded software is application software that is bundled within a piece of equipment or a computer. In California, the taxpayer has the responsibility to determine and support the taxable versus nontaxable costs of equipment containing non-taxable embedded software, and the non-taxable portion is often disputed in audit findings.
To date, there is little consensus amongst the 58 county assessors in California regarding what level of evidence is needed to quantify and support the non-taxable embedded application software costs. Every county can rule differently. In absence of “sufficient” evidence, assessors will conclude the full cost of the equipment as taxable. The lack of uniformity has created disparity amongst taxpayers, specifically smaller taxpayers who may not have the resources to gather sufficient evidence.
At its meeting on May 22nd, the California Board of Equalization (BOE), which provides clarity for property tax matters for the state’s 58 counties, resumed discussions related to this issue.
SC&H Group will continue to monitor this challenging situation and update you on the process. Stay tuned to the SC&H Group blog where we will provide additional information regarding the May 22nd meeting.
Learn more about SC&H Group’s State & Local Tax practice.